PayPal (NASDAQ:PYPL) stock got punished for its worse-than-expected fourth-quarter guidance back in November. But there wasn’t much to be worried about otherwise. In fact, it was a pretty good quarter except for the guidance the company provided.
That means it looks like a buy-the-dip situation as one of the forefathers of fintech. Let’s revisit that third-quarter earnings report in order to better understand the opportunity because it looks like a classic case of the market overreacting.
Reasonably Strong Third Quarter
Most metrics indicate that PayPal had a pretty good third quarter. Net revenues hit $6.18 billion, up 13% year-over-year. Total payment volume increased by 24%, reaching $310 billion. Free cash flow jumped up by 20%, allowing PayPal to reward shareholders in the form of a $350 million stock repurchase.
Pretty much everything else was solid for the firm, as well. It was only weak forward guidance that represented an issue. Analyst expectations and management’s outlook clashed.
Analysts had been expecting fourth-quarter earnings per share (EPS) figures of $1.27 on revenues of $7.24 billion. Thus, trouble arose when management let it be known that their EPS figures were $1.12 with revenue range of $6.85 to $6.95 billion. That sent PayPal shares plummeting from $229 to under $200 in just over a week and have remained there since.
So, the question is this: was that the beginning of a greater slide for PayPal, or a momentary aberration? If it is the latter, then investors have a strong opportunity in front of them right now.
Opportunity in PYPL Stock
I think this is simply an opportunity. Play the longer game and PYPL stock looks to be worthwhile. Broad indicators including target prices certainly seem to point to that idea. The vast majority of the 49 analysts covering PayPal have it at a buy. And they’ve given it a $272.40 target price. Surely enough, that indicates that a buy-and-wait strategy could be an easy winner.
And although PayPal’s revenue projections for the fourth quarter disappointed Wall Street, the top line is still growing. Current indications are that the firm should see $30 billion in revenue in 2022. It should record a bit over $25 billion this year.
Expansion Plan
One of the more interesting things PayPal is expanding is its Buy Now, Pay Later initiative. It is essentially a way to make purchases over two months in a series of smaller payments. It’s interest free credit to buy larger items, as well. Get what you want now but don’t have quite enough money to buy rather than paying interest or waiting until you have the full purchase price.
Buy Now, Pay Later recorded a transaction volume of $5.4 billion for the last twelve-month period through 2021’s third quarter. It added Japan as a partner country in October and will add Spain and Italy this quarter.
Venmo
PayPal is launching Venmo on Amazon next year, as well. So, sometime in 2022, U.S. customers will be able to pay with Venmo at checkout.
The fact remains that PayPal is the most accepted digital wallet globally. PayPal will be able to collect serious fees from those transactions which is yet another reason to consider this as an opportunity.
What to Do about PYPL Stock
It’s easy to follow the market crowd as an individual investor. When Wall Street punishes PayPal or any other firm over unfavorable guidance, individuals follow.
In this case, that seems like a wasted opportunity to not be a contrarian. PYPL stock is still down because of fourth-quarter guidance. But it looks like a great opportunity moving forward. The market often overreacts on slight misses. That implies that the market relies too much on Wall Street opinions at times. I think this is one such example.
The company expects roughly 20% revenue growth in 2022. That’s pretty phenomenal considering its place in the digital payments environment and one of many reasons to avoid missing out now.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.