Today’s daily stock pick is a tech stock that has likely entered deep value territory.
Now, I know that seems like a contradiction. After all, tech stocks are mostly growth stocks – and they’ve performed extremely well this year. So what gives?
Well, for one, today’s company has not seen the positive momentum other tech stocks have.
In fact, its recent stock price performance has been downright lackluster – down nearly 15% for the year, and down over 33% over the past one year. Compared to its 2021 peak? It’s down 80%.
It also just released its Q2 earnings – which actually caused the price to dip even more.
So, why am I spotlighting this stock?
Because if you look beneath the surface, you’ll find some very good reasons that this stock has entered deep value territory – meaning it could be substantially undervalued.
Of course, this means a longer-term buy-and-hold play – which is always a nice change after Monday’s edition where I spotlight three short-term picks.
This could be a huge “buy low” opportunity – so don’t miss it.
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PayPal Holdings, Inc. (PYPL)
Questions about PayPal’s growth prospects have been weighing the stock down. One metric that investors have been paying close attention to – the number of Active Accounts – has been declining. As at the end of June 2023, Pauypal had 431 million active accounts, compared to 435 million at the end of 2022.
It seems clear that PayPal’s account growth has stalled. In 2021, the company ambitiously boasted that it could hit 750 million accounts by 2025. That doesn’t seem realistic at this juncture, and so investors’ concerns do seem well warranted.
But it all depends on what you’re paying for it. PayPal has countered the slowing growth in Active Accounts by focusing on better monetizing those accounts – and its strategy appears to be working. Total Payment Value, Number of Payment Transactions, and Transactions per Account have all posted double-digit growth.
Declining gross margins have also been highlighted as an issue – however the company has managed to improve its operating margins. And while guidance remained constant, PayPal is confident in reaching $5 billion in free cash flow for the year.
Let’s close off with a comparison to Meta. Meta also saw big stock declines due to slowing account growth and declining margins. But it quickly streamlined its operations, and its stock price is now close to its all-time highs. We could see the same happen with PayPal.
To your wealth,
Felix @ Ace of Investing