The company has been beating analysts’ earnings expectations for 4 quarters in a row. Is the stock an attractive buying opportunity?


Company background

PayPal Holdings, Inc. (PYPL) is an American corporation and a leader in the online payments sector in most countries that support online money transfers. PayPal’s electronic payment system replaces traditional payment methods like money orders and checks.

Actually, PayPal has emerged as one of the largest companies in the online payment solutions sector thanks to its two-sided platform offering smooth and secure transactions to both merchants and customers. The main driver of the company’s total payment volume (TPV) comes from its key catalyst Venmo, which drives the active accounts base of the company by using strong monetization efforts and robust features. The company also offers domestic and international peer-to-peer payment facilities with the help of the PayPal platform as well as its Xoom products.

Overall, PayPal operates as a payment processor for many online vendors, auction websites, as well as other commercial customers and charges them a fee for the great service it provides them with.


Financial performance and quarterly earnings results


By looking at PayPal’s overall financial performance, we shall say the company has done a very good job in the past 5 years. In fact, the revenues of the company have been growing quite impressively and have actually more than doubled between 2016 and 2020, while the net profit has almost tripled in the meantime. The company has done a very good job even during the pandemic of coronavirus when customers have been shopping online during the lockdown on a global basis.

As a matter of fact, PayPal has proven its strong financial performance and market positioning by performing well during the pandemic and reporting better than expected financial results in all of the past 4 quarters since Q2 of 2020. The most recent Q1 financial results that have come out on the 5th of May have further confirmed the company’s strong financial positioning at the moment. PayPal reported earnings of $0.91 per share, while the expectations were for $0.73 per share and that came out as an increase compared to the previous quarter’s $0.75 per share (Q4 of 2020).

Overall, PayPal has been benefiting from robust growth in total payments volume across the board, thanks to the increase of the new active accounts with the company. Furthermore, the company has managed to strengthen its customer engagement on the platform, which is an important factor for its overall financial performance.
PayPal’s Venmo is also improving its monetization efforts and helps increasing the total active accounts on the platform.

The situation with the coronavirus is getting better and the vaccination procedure has kept improving, meaning there are more people being vaccinated around the world on a daily basis. That being said, we are expecting the situation with the virus to get a lot better until the end of this year and that would have a positive impact on the economy where the business could start going back to operating normally, which in turn would increase the transaction volumes and payments online that would help the company boost its revenues and profits further in the next few quarters.

Let’s have a look at the chart and see if PayPal looks like an attractive buying opportunity.


Technical analysis

The daily chart of PYPL shows the strong uptrend the price has been following in the past year. In fact, PYPL stock bounced from the $86 lows in March 2020 to reach the $309 highs in February this year (260% rise), followed by a correction towards the current levels at $252.

Well, it was quite logical to see profit-taking interest after the price more almost quadrupled in value in 11 months, right?
Actually, the recent profit-taking correction is giving us a great entry level for our buy positions at a decent discount. Moreover, the price is currently testing the strong support at $250 where we are expecting to see some buying pressure after the recent correction and after the strong quarterly financial results and the earnings beat on the 5th of May.

The horizontal support matches with the diagonal support at that point, while the lower Bollinger bands and the 50-day moving average stand close to that support level as well, giving even stronger buying indications and a very likely price reversal from the current levels.

Moreover, the RSI and Stochastics indicators have already started crossing up from the oversold territory, giving further bullish indications.
Overall, based on the strong financial performance of the company and the high expectations for the future, together with the recent profit-taking correction that is giving us a great chance for buying at a strong support mark, we have decided to add PYPL stock to our portfolio.


Chart: PYPL


As you know, we at Dow Experts always include the importance of both fundamental and technical factors in our analyses because we believe they are key metrics for the overall performance of the instruments we analyze. Furthermore, before we take an action to buy the stock we are evaluating, we analyze the performance of the biggest ETFs out there in which the company we analyze plays a major role. In other words, we use our cross-sector correlation analysis in order to find out whether there is a similarity between the price-action trade of the current stock we are evaluating and if there is a confirmation by certain ETFs that have invested in that particular stock.

Only if there is a clear confirmation between the ETFs and indices we use for our correlation analysis then we can confirm whether it is a good idea to enter the market at the current prices or possibly be patient and wait for a better entry level at a more attractive price. In fact, it is important to mention that entry and exit levels are among the most important factors that determine a trader or an investor’s success on the market.

The Vanguard Total Stock Market ETF (VTI) tracks a cap-weighted index, which measures the investable US equities market and is a solid ETF that gives investors an equity market exposure and includes small, medium and large market capitalization companies.

The fund invests in a wide variety of equities from all sectors of the business and also follows major US indices such as Dow Jones & MSCI.

By looking at the daily chart of the VTI, we shall say the ETF has done a great job over the past year, bouncing from the lows at $109 to reach the $218 highs in the end of April this year. In other words, the price has exactly doubled in the past 13 months, making lots of profits for investors following the index. We have recently been seeing some profit-taking correction that has only managed to send the price down towards the first major support at $212 where lots of buying pressure has been taking place and the price has been spiking back up from that level immediately. In fact, the strong support at $212 matches perfectly with the lower Bollinger band, while the 50 day moving average is standing right below the support mark as well, giving further bullish indications. The RSI and Stochastics keep heading higher and signaling a further bullish potential ahead. Even if the price breaks the first major support at $212 it would be testing the next support levels at $208 and $200 where more buying pressure is expected and we would be expecting the price to bounce from one of those levels.


Chart: VTI


By analyzing the performance of the VTI, we shall say it clearly confirms our bullish stance on the PYPL stock. In order to further confirm our bullish expectations on the stock, we would analyze the recent price-action on the other leading ETF that invests in the stock – IVV.

The iShares Core S&P 500 ETF (IVV) tracks a market-cap-weighted index of US large as well as mid-cap stocks selected by the S&P Committee.

The IVV is among the several ETFs out there that track the S&P 500 Index with $278 billion in assets under management and an average daily trading volume of $1.67 billion.

PayPal accounts for around 1% of IVV’s total portfolio.

By looking at the daily chart of the IVV, we should say it looks almost the same as the VTI – a strong bullish rally over the past 13 months, followed by a little profit-taking correction that has led to the price dropping from the $420 highs only to test the strong support at $413, followed by another bullish reaction towards the current levels at $423. In other words, the $413 has proven to be a strong support level that brings lots of buying pressure and the price has been struggling to break that key support since the middle of April, further confirming the strong uptrend that the IVV is trading in and giving expectations for more bullish rallies in the future. Even if the price drops below and breaks that level, it would be testing the next strong support at $400 where even more buying pressure is likely to take place and the price would find a tough time breaking below that level, considering the strong uptrend the whole stock market is trading in at the moment.


Chart: IVV

Overall, the recent movements on the IVV further confirm our bullish stance on PYPL and would be looking to add the stock to our portfolio.


Conclusion

After analyzing PayPal’s overall financial performance and great market positioning, as well as the recent quarterly earnings results, we believe the PYPL stock looks like an attractive opportunity. We have also confirmed our bullish expectations on the stock by analyzing the recent performance of the leading ETFs that own the stock in their portfolios and they further confirmed our positive expectations.

Therefore, we have decided to start buying PYPL stock at around $250, just above the $245 support. Should the price drop further, we would be interested in buying more at the next support mark at $230 where more buying pressure is likely to take place and it would give us a chance to improve our average cost basis on the stock.

Our initial profit-taking target would be set at $270-$275, followed by the next target at $300 where we would be fully cashing in our profits and waiting for another profit-taking correction that would give us a chance to buy the stock at a strong support again in the future.



Sincerely,

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