PayPal Holdings (PYPL) reported third-quarter earnings results that mirrored what we’ve seen so far this year – continued growth in profitability. The company delivered on one of its key metrics for the quarter, yet the stock is down nearly 4% Tuesday morning.
Revenue for the third quarter came in at $7.85 billion, which was a 6% improvement year over year but a bit below the analyst expectation for $7.88 billion.
Adjusted earnings per share showed a 22% year-over-year improvement at $1.20 compared to the consensus of $1.07 per share.
But the big focus for Q3 was on a metric called transaction-margin dollars. This indicates how profitable the company’s volume is. Excluding interest on customer balances, the figure came in at a 6% growth rate – well above what Wall Street was expecting at just 4%.
The company expects more to come for the remainder of the year, as this metric should grow at a mid-single-digit growth rate compared to the low-to-mid-single-digit growth rate previously forecasted.
Still, it’s reasonable to expect PayPal will see transaction-margin dollars growth level off in Q4, with some analysts forecasting a 3.5% growth in the quarter.
Despite improvements in profitability in the third quarter, the stock tumbled on the news. Some of this could be attributed to a weak fourth-quarter revenue guidance. The outlook implies low single-digit growth, which will likely fall short of the consensus estimate for 5.4% growth.
But the company made it clear that it wasn’t chasing revenue growth at this time. Profitability is the primary focus in the short term. It still wants to grow volume, but not at the cost of profits.
You can see these efforts coming to fruition in the latest quarter. While the company’s $1.01 billion in net income was slightly below the $1.02 billion reported this time last year, it worked out to 99 cents per share compared to 93 cents per share.
Even after today’s slight step backward, PYPL is still trending in the right direction. It’s up more than 38% in the past three months and nearly 59% since this time last year. So, where does that leave investors interested in trading PYPL?
Back in June we mentioned that PYPL was a buy when it sat at just $67 per share. The stock has climbed to $80 per share since then, so hopefully you took our advice.
We’ve analyzed this stock for you again today using the VectorVest stock software and see 3 reasons it’s still a good time to buy PYPL. Here’s what you need to know…
PYPL Has Good Upside Potential and Safety With Very Good Timing
VectorVest is a proprietary stock rating system that distills complex technical indicators and fundamental data into clear, actionable information, helping you win more trades with less work and stress.
You’re given all the insights you need to make calculated, emotionless investment decisions in 3 simple ratings: relative value (RV), relative safety (RS), and relative timing (RT). Each sits on a scale of 0.00-2.00 with 1.00 being the average.
This makes for quick and easy interpretation, but VectorVest makes it even more straightforward by delivering a buy, sell, or hold recommendation for any given stock at any given time based on its overall VST rating. As for PYPL, here’s what we uncovered:
- Good Upside Potential: The RV rating is a much better indicator than the typical comparison of price to value alone because it compares a stock’s long-term price appreciation potential (based on a 3-year projection), AAA corporate bond rates, and risk. The RV rating of 1.12 is good for PYPL. The stock is undervalued, too, with a current value of $94.26.
- Good Safety: The RS rating is a risk indicator. It’s calculated from a deep analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, sales volume, price volatility, and other factors. The RS rating of 1.17 is also good for PYPL.
- Very Good Timing: The RT rating is based on the direction, dynamics, and magnitude of the stock’s price movement. It’s calculated day over day, week over week, quarter over quarter, and year over year, painting the full picture for investors. The RT rating of 1.30 is very good for PYPL.
The overall VST rating of 1.21 is good for PYPL and the stock is rated a BUY in the VectorVest system. Take a closer look with a free stock analysis today so you can capitalize on this opportunity to enjoy a smooth, profitable trade - see what VectorVest can do for you today!
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VectorVest advocates buying safe, undervalued stocks, rising in price. PYPL posted profit improvements for the third quarter, but the stock is still falling on concerns of stagnant revenue growth. The stock itself has good upside potential and safety with very good timing.
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