What does a bull case look like for PayPal stock?

Investing.com -- PayPal (NASDAQ:PYPL) stock has been a focal point of discussions recently, particularly regarding its bullish, or lack of bullish sentiment. 

As the company continues to navigate challenges, analysts have assessed the stock and analyzed what could boost its growth potential and success in the market.

PayPal stock struggles continue

PayPal stock is some way off its 2021 highs of over $300 per share. It currently languishes above the $64 mark.

But even that doesn’t show the full story. The stock is up 5.6% for the year-to-date, but in truth, it has lacked any real upside momentum after hitting a low of $50.25 back in October 2023. Over the last 12 months, PayPal shares are down 14.5% over the last 12 months. 

Analysts at Daiwa recently cut its rating for the stock to Neutral from Outperform, pointing to the company’s “conservative guidance.” The firm also said they find it difficult to envision medium/long-term EPS growth for the company until there is a return to a clear growth trajectory for transaction margin dollars and the benefits from ramped-up investments emerge.

Meanwhile, Argus downgraded PayPal stock to Hold from Buy following the company’s fourth-quarter results. They stated: “We expect weaker overall growth in payment volumes for PayPal in 2024 amid higher interest rates and rising competition.”

Bernstein discusses bull case for PayPal stock

So what does the bull case for PayPal shares look like?

Analysts at Bernstein believe that the “stock screens very attractively at 8% FCF yield and 15.5x 2025 PE (13x ex-Cash).”

“Peers which have significant overlap with elements of PayPal (e.g., Braintree, Venmo) trade at much richer valuations,” added the firm. “Cash is ~20% of market cap, and the company will buyback ~8% of its stock in the coming year.”

Furthermore, they believe the bar is fairly low. While the sell-side projects MSD GP growth CAGR from 2024-2026E, the buyside numbers are several points lower already. 

“The new management team, which has been on the road with investors for the last couple of weeks, has indicated that the guidance is ‘prudent,’” said Bernstein. “Pulling back from unprofitable deals (on Braintree) may (on surface) mean that gross profit outlook can be better.”

The firm also highlighted newer initiatives, such as better button experiences, Fastlane, and the PPCP rollout, which they say aren’t in the numbers and can accelerate growth. 

Bernstein also notes that PayPal management has said the button trajectory is better than what investors think and the company may provide more disclosures at the investor day. 

“Better consumer experiences, improved latencies, and rewards can possibly slow the bleed on the button,” said Bernstein analysts. “There could also be potential for further opex cuts over time. In a bull case, the stock can compound earnings in the teens from HSD eComm growth, MSD button growth, blocking and tackling in unbranded, opex benefits and buybacks.”

Overall, the firm believes a bull case price target may be over $100 per share, with a re-rating to at least a market multiple.