With the stock market gaining momentum, it’s becoming more difficult to find bargain-priced stocks to upgrade your portfolio. Electronic payment processor PayPal (NASDAQ:PYPL) is one such company whose share price has risen 20% from where it bottomed in mid-March. But PYPL stock is still trading 15% lower than its February highs, making it a worthwhile pick right now.
Discounted or not, PayPal makes for a solid core holding because of it’s solid operations and promising long-term growth runway. The electronic payments space is growing rapidly as e-commerce continues to replace traditional retail. For that reason, PayPal is worth a look despite its rapid rise over the past few days.
PYPL Stock Is a Bet on the Future of Payments
As an early entrant into the digital payments space, PayPal has the benefit of existing relationships with a variety of merchants as well as consumers. That has given the firm a strong jumping off point and made it difficult for rivals to compete.
So far, we’ve seen PayPal grow exponentially alongside e-commerce, a segment that’s expected to continue growing over the next few years. PayPal has seen active users grow consistently over the past few years. In Q4 the firm reached an important milestone by surpassing 300 million active accounts. CEO Dan Schulman says the firm’s next goal is 1 billion users.
The firm is also looking to expand beyond just e-commerce; the company has been growing its platform to include in-store transactions as well. That’s an important growth runway as more than 80% of retail sales in the U.S. came from brick-and-mortar stores last year.
The Power of Mobile
PayPal has dipped its toe in physical sales over the past few years with its reward-heavy Venmo debit card. This year, the company is planning to expand that avenue with a credit card option some time this year. However, PayPal’s latest project is expanding mobile payments that are likely to become the future of in-store transactions.
PayPal has been working to develop a QR code-based payment system with the help of GoPay, a Chinese payment company. QR codes are a common payment option in China and the experience is considered frictionless — PayPal seems to be betting that will be the next major leap in the payments space.
PayPal has also been working to keep up with the growing trend of contactless payments, though competition in that space is much tougher as phone companies like Apple (NASDAQ:AAPL) promote their own payment methods.
The Power of Cashless
In order to be a winner in the payment processing space, PayPal needs to establish itself within in-store transactions. Be it through QR codes or contactless payments, cashless payments are a key growth catalyst. The U.S. cashless payment market is expected to grow to $184.5 billion transactions in 2020 — PayPal needs to be a top dog in this space to keep up with its monumental growth.
So far, despite the firm’s lag on contactless payment technology, it seems PayPal is doing a pretty decent job of maintaining a spot at the front of the pack. Although the company hasn’t resonated as well with younger generations, a Macquarie survey showed that the firm’s usage trends are outperforming competitors like Apple.
PayPal’s inability to wow younger millennials thus far is worrying, but all that could change as the firm continues to update its value proposition. The company recently acquired Honey, a rewards platform, that could significantly improve PayPal’s engagement among young people. The firm is even considering expanding Honey’s capabilities to include in-store offers, making PayPal payments more enticing.
The Bottom Line on PayPal
PayPal won’t be immune to the sharp pullback in consumer spending that’s expected to show up in Q1 results. That weakness could also persist and weigh on PayPal’s results through the rest of the year. However, PayPal’s solid cash position and relatively strong cash flows make it one of the better choices with uncertainty looming over the market.
PYPL stock was a great option in the payments space back in February, and now that it’s trading at a 15% discount, it’s an even better buy.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.