In a year when technology stocks have led the market, PayPal (NASDAQ:PYPL) stock has been a laggard. Value seekers may consider investing in PayPal now, but the risk-to-reward balance isn’t favorable. There’s risk and uncertainty as PayPal is undergoing a CEO transition.
Furthermore, PayPal and other U.S. non-bank fintech firms may have to face scrutiny from the Consumer Financial Protection Bureau. Besides, those aren’t the only issues to consider. So, let’s see what else PYPL stock investors will have to contend with during the coming months and quarters.
PYPL Stock: Don’t Get Value-Trapped
Throughout much of 2023, PayPal might have looked like a good value because it had a low trailing price-to-earnings ratio. But then, PayPal’s shareholders just kept on losing money.
Being stubborn is a cardinal sin in the financial markets. There’s nothing wrong with cutting your losing trades short and admitting that you got value-trapped. As long as the market is concerned about high interest rates and keeps rotating into higher-quality tech stocks, PYPL stockholders could continue to suffer losses.
It’s difficult to think of PayPal as a great value when the company’s income is declining and its expenses are growing. Here’s the evidence: In 2022’s third quarter, PayPal had net income of $1.33 billion and $5.728 in operating expenses. Fast-forward to the third quarter of 2023, and PayPal’s net income fell to $1.02 billion while the company’s operating expenses increased to $6.25 billion.
Morgan Stanley analyst James Faucette pointed to a concern among some investors that PayPal’s financial problems could go from bad to worse.
“[I]t’s hard to see a path to improving fundamentals without substantially greater investment over a longer period,” he said, “which could result in meaningful downward EPS estimate revisions that makes valuation less attractive.”
Elon Musk’s Threat to PayPal
Elon Musk owns X, formerly known as Twitter. You might know X as a social media platform, but Musk has a bigger vision for the company and this could pose a serious problem to PayPal.
According to The Verge, Musk plans to transform X into “the everything app.” Musk envisions X as a platform where payments can be made. However, Musk clarified, “When I say payments, I actually mean someone’s entire financial life.”
Musk added, “If it involves money, it’ll be on our platform — money or securities or whatever.” Clearly, he’s prepared to compete with PayPal and similar fintech rivals. “It’s not just, you know, send 20 bucks to my friend. I’m talking about, like, you won’t need a bank account,” Musk declared.
Since Musk is known for executing on big ideas, PYPL stockholders should take his plans seriously. Moreover, Musk hinted that his transformation of X into a payments platform should be “rolled out by the end of next year.” In other words, PayPal could have a powerful competitor fairly soon.
PYPL Stock: Multiple Risks Could Outweigh the Rewards
Unfortunately, PayPal turned out to be a disappointment for its investors in 2023. We’ve discussed multiple issues indicating that PayPal will probably continue to let its shareholders down.
Therefore, don’t assume that PayPal offers a great value just because the share price is depressed. All things considered, PYPL stock gets a “D” grade and cautious investors can simply choose to avoid it.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
