Digital Payments Giant Paypal (NASDAQ:PYPL) has taken quite the beating in the stock market this past year. Most recently, management’s disappointing guidance has irked investors in PYPL stock.
However, the market appears to be short-sighted about Paypal and its incredible growth runway ahead. If anything, the dip represents an excellent opportunity to load up on its shares.
Paypal has witnessed a couple of quarters with revenue misses, putting its short- to intermediate-term sales growth outlook under the scanner. Consequently, it also puts question marks over the firm’s 20% growth target between now and 2025.
However, it’s best to step back and look at the bigger picture with Paypal. It has plenty of catalysts to sustain its growth trajectory for the foreseeable future. With PYPL stock trading at more than a 30% discount to its analyst price targets, it couldn’t be a better time to scoop it up.
Weaker-Than-Expected Third Quarter
Paypal reported weaker-than-expected third-quarter results on Nov. 9 last year, which led to a 12% drop in its stock price. Its third-quarter revenue of $6.18 billion missed the $6.23 billion consensus.
Moreover, the company’s fourth-quarter revenue forecast of $6.85 billion to $6.95 billion came in significantly below the consensus of $7.24 billion.
Management noted that the global supply chain shortages, absence of stimulus payments and the normalization of e-commerce demand have weighed on the results. Its migration away from eBay (NASDAQ:EBAY) is also playing a role, but at a lessening rate.
However, Paypal’s management believes most of these headwinds are transitory by nature. Naturally, it will have a tough time in the short-term as it tries to match last year’s amazing results. However, in the long run, Paypal is likely to pick up the pace again and overcome these roadblocks.
The Outlook for Paypal
As I mentioned earlier, Paypal’s management plans to deliver a consistent 20% top-line growth for fiscal 2021 to 2025. However, due to recent headwinds, they have had to revise growth targets to 18% for 2021 and 2022.
Naturally, the downgrade for 2022 is largely because of tough comps. Paypal saw incredible growth during the first couple of quarters in 2021 due to robust e-commerce activity. However, it’s unlikely to see such heightened activity in the post-pandemic scenario.
Nevertheless, Paypal’s reputation is intact, with 416 million active accounts as of Q3. Moreover, the company recently surpassed $310 billion in total payment volume, which grew 26% from the prior-year period.
Furthermore, its latest acquisition and partnerships will provide strong tailwinds for its business. Paypal recently bought Japanese buy-now-pay-later (BNPL) firm Paidy, which extends its reach into a top-tier e-commerce market where the majority of purchases are still made with cash.
Moreover, there’s also its partnership with Amazon (NASDAQ:AMZN), which will allow Venmo as a checkout option on its app and website. Venmo has been a success story for Paypal, having more than 80 million users as of November and $159 billion in total payment volume (TPV) in 2020.
Nevertheless, a short-term rebound in the price for PYPL stock seems unlikely. These growth drivers will take time to play out and have a meaningful impact on revenues and the company stock.
The Bottom Line on PYPL Stock
Paypal’s numbers are rock solid despite missing the market with Wall Street’s estimates in the past couple of quarters. Its engagement is ticking up, and its user base continues to grow rapidly.
Additionally, its cash flow and profitability margins continue to be green. Its recent acquisitions will add to its growth runway and point to an awe-inspiring outlook ahead. Smart investors should view the recent dip as a fantastic opportunity to buy Paypal’s shares.
On the date of publication, Muslim Farooque 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 InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.