1 Beaten-Down Growth Stock Down 76% - A Buy Opportunity Now

PayPal's Struggles and Path to Recovery

PayPal has experienced a significant decline in its stock value, plummeting 76% from its all-time high of $310. Despite this drop, the company remains a dominant player in the U.S. digital payment market with a 71% penetration rate. As the financial landscape continues to evolve, CEO Alex Chriss is steering the company towards a broader commerce platform, aiming to reduce checkout times by 32% and enhance user experience.

The Roller Coaster Ride of PayPal's Stock

Over the years, PayPal's stock has been a wild ride for investors. In 2021, it reached dizzying heights as the fintech sector surged. However, as pandemic tailwinds faded and the Federal Reserve raised interest rates, the stock began a downward spiral. Today, it trades between $50 and $95 per share, significantly below its peak. This downturn has led to a more reasonable valuation, with a price-to-sales ratio (P/S) of 2.39 and a price-to-earnings ratio (P/E) of 16.7. These valuations reflect a lack of optimism among investors, but they also present an opportunity for those willing to take a chance.

PayPal's Growth Challenges

During the pandemic, PayPal saw rapid growth, adding customers at an impressive pace. This growth led to a steep premium on the stock, with the company valued at up to 109 times earnings and 16.9 times sales. However, the company struggled to meet investor expectations, resulting in a significant stock decline. While revenue increased by 7% to $31.7 billion last year, and diluted earnings per share (EPS) rose by around 4%, the company needs to improve margins and accelerate growth to attract more investor interest.

Strategic Shifts Under CEO Alex Chriss

Under the leadership of Alex Chriss, who took over in 2023, PayPal is undergoing a strategic transformation. The company aims to shift from being just a payments provider to a comprehensive commerce platform. A key part of this strategy involves creating a "winning checkout" by accelerating the rollout of an upgraded online checkout, with its Fastlane offering playing a crucial role. This one-click solution reduces checkout times by 32%, boosting conversion rates for merchants and supporting the company’s small and medium-sized business (SMB) strategy.

Stablecoin Initiatives and Future Prospects

Recent developments in stablecoin initiatives could further bolster PayPal's position in the market. The bipartisan Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) provides a framework for regulating digital tokens pegged to real-world assets. PayPal was one of the first major financial institutions to enter the stablecoin market with the launch of its USD-backed stablecoin, PYUSD, in 2023. This stablecoin is pegged to real-world assets such as U.S. dollar deposits and Treasury notes, and has been used for business-to-business payments with companies like Ernst & Young and Alphabet's Google.

PayPal views PYUSD as a tool to connect the traditional economy with Web3, aiming to create a "commerce-ready ecosystem" through cross-border transfers, vendor payments, payouts, and bill paying. This initiative positions the company to stay ahead in the competitive payments landscape.

Investment Considerations

Despite the challenges, PayPal is working to reignite growth through various initiatives. The company is integrating PYUSD into more products to facilitate faster and cheaper payments for merchants, which can lower costs in cross-border transactions. Additionally, it is focusing on improving its SMB offerings with the PayPal Complete Payments platform and expanding its digital advertising business.

The stock is relatively cheap, and the company's efforts to drive growth could lead to a revaluation. Management has guided for gross profit to grow 5% and adjusted EPS growth of around 8% at the midpoint this year. Looking ahead, the company targets a "low teens-plus" EPS increase by 2027 and aspirations for 20%-plus EPS growth in the longer term.

Investors considering PayPal should weigh the potential for growth against the current valuation. While the stock may not be the top choice for some analysts, its lower valuation offers a margin of safety if growth does not pick up. If the company can successfully reinvent itself, it could lead to a significant rebound in stock performance.