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It was not a good year in the markets for PayPal (NASDAQ:PYPL). PYPL stock is down nearly 26% in 2023 and over 28% over the past five years. At one point in 2021, it was trading over $300.
This led to speculation that Warren Buffett might buy PayPal stock. when Berkshire Hathaway (NYSE:BRK.B) filed its Q3 2023 13-F on Nov. 14 with the SEC, it disclosed that it is building a position in an unnamed company.
Barron’s contributor Andrew Bary speculated on Nov. 16 that it might be a financial company.
“The stock is likely a financials company because Berkshire disclosed in its 10-Q that its cost basis in financials grew in the third quarter by about $1.2 billion, while its cost basis in other groups of stocks decreased. The filing shows that Berkshire did not add to its existing holdings of financial stocks, indicating that it has moved to a new firm,” Barry said.
Barron’s best guesses as to who the mystery company is are Morgan Stanley (NYSE:MS), BlackRock (NYSE:BLK), and Chubb (NYSE:CB)—all great companies.
However, this is why he might consider the lower payments.
PYPL Stock Is Cheap
I’ve noticed how far its stock has fallen over the past two years from its lofty heights in July 2021. However, just because shares have dropped in price doesn’t mean its stock is a bargain. We’ve all bought into a falling knife in our investing past.
InvestorPlace’s Michael Que recently discussed why PYPL stock is undervalued. Despite increased competition and regulatory changes, Que argued that there is no getting around the fact that PayPal has 433 million active accounts across 200 markets worldwide, enabling it to capture 42% of the global market share of digital payments.
According to Morningstar.com, its current earnings yield is 6.05%, 2.7x its five-year average. Its enterprise value of $58.8 billion is just 9.47x its EBITDA (earnings before depreciation and amortization), more than two-thirds less than its five-year average.
By every financial metric, it’s cheaper than it’s ever been.
PYPL Stock Bull Still on board
Mizuho Securities analyst Dan Dolev has long been bullish on PayPal’s prospects. However, on November 15, Dolev dropped his price target by $20 to $72. Fortunately, the analyst maintained his Buy rating on the stock.
Dolev believes that PayPal may merge its platform with Venmo, its peer payments platform, to create a global digital wallet, WallStreetZen reported.
“Venmo is a verb and it’s something that’s huge in the US and has opportunities beyond. If I think about all the different core problems that we can solve with the assets that we have for customers, Rewards, Buy Now Pay Later, Kashback cards, all of those are huge and within our grasp,” said Chriss. “We just , as I mentioned earlier, just have to put them together in a core value proposition, and that’s what the team is working on now.”
Newly appointed CFO Alex Chriss had good things to say about Venmo in the company’s Q3 2023 conference call with analysts.
Chriss echoed what Dolev said about its two platforms. Venmo and PayPal can work together to build a more profitable business.
Company to Lower Costs
PayPal shares gained in early November after Chriss stated that to become a more profitable business, it needed to lower its cost base by focusing on its “most profitable growth priorities.”
As is often the case with large companies that expand globally, their expenses sometimes outpace revenue growth. With the new CEO, Chriss can get to work empowering the business.
The CEO’s insight into the company’s obstacles to success impressed analysts. With a new CFO and Chief Technology Officer recently introduced by Chriss, he has the management in place to pursue his vision for the future of PayPal.
Buffett could look to support the company at this critical time in its history. With or without Berkshire, PayPal is a great long-term buy.
As of the date of publication, Will Ashworth 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 Publishing Guidelines of InvestorPlace.com.
Will Ashworth has written about investments full-time since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the US and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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