2024-06-17 03:02:01 ET
Summary
- I had a 'Neutral/Hold' view on PayPal stock, but was able to capture +2.57% of alpha from a tactical bullish play since my update. Now, I am downgrading my stance.
- PayPal's quality of growth continues to be weak as it fails to grow active accounts. Consumer surveys suggest loss of user share.
- Q1 FY24 gross margins saw a 100bps decline, but I expect future quarters to be worse in the absence of certain tailwinds.
- There have been a couple of notable insiders, each selling ~25% of their stake in PayPal.
- PayPal needs to grow 4x faster to match the attractiveness of NVIDIA, considering a combination of valuation and growth expectations.
Performance Assessment
In my last article on PayPal ( PYPL ), I had initially issued a 'Neutral/Hold' rating to reflect my expectation of performance in-line with the S&P 500 ( SPY ) ( SPX ). However, for a brief period, I changed my stance to a 'Buy' when the technicals showed signs of a potential V-reversal. But once the follow-through started to weaken far sooner than expected, I reverted my stance to a 'Neutral/Hold' again. As usual, these updates were communicated in a pinned comment in my last article. During this tactical bullish play, PayPal gained +4.33% vs the S&P 500's +1.76%, leading to a capture of +2.57% alpha.
Thesis
I am downgrading my stance on PayPal to a 'Sell' as I note the following:...
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PayPal: Unattractive Given Far Better Opportunities (Rating Downgrade)