From Toxic to Top Pick: PYPL Stock’s Imminent Fourth Quarter Surge

Stocks to buy

Even though it’s a well-known technology company, PayPal (NASDAQ:PYPL) is definitely one of the “Magnificent Seven” in 2023. Short-term traders have been selling PYPL stock as if it’s toxic lately. However, this opens up a window of opportunity for value-focused investors.

Market rotation out of some stocks and into others can be extreme sometimes. Soon, PayPal will remind short-term traders that the company isn’t toxic and is actually doing well. Just as the share-price drop was drastic, the relief rally could be astounding if the market favors PayPal in the fourth quarter.

A Shocking Beatdown in PYPL Stock

It’s amazing to consider that PYPL stock recently fell into the low $50s. That’s not just 52-week lows; it’s at prices not seen since 2017. Even the Covid-19 crisis didn’t cause this magnitude of selling among PayPal’s jittery shareholders.

Evidently, stock traders refuse to acknowledge that PayPal’s second-quarter 2023 revenue increased 7.4% year over year. The company’s volumes and transactions operating income rose 31.5%.

Also, PayPal continues to lead the fintech space with brilliant ideas. In a recent example, the company introduced a feature on PayPal’s app which allows users to track the status of a package delivery, even if they didn’t use PayPal to make the purchase.

There’s talk of PayPal being a prime acquisition target. I concur with this assessment, as a bigger company (maybe even one in the “Magnificent Seven”) could see the value in PayPal’s assets even if the stock market doesn’t.

PayPal’s Big Opportunity to Shine

Speaking of value, PayPal has a GAAP-measured trailing 12-month price-to-earnings ratio of 14.89x. That’s a lot lower than PayPal’s five-year average P/E ratio of 53.69x.

Per TheFly, HSBC analyst Saul Martinez recently recommended investing in “deep value” within the U.S. payments and consumer-finance sector. I’d claim that PayPal fits this description, and perhaps Martinez agrees. The HSBC analyst initiated coverage of PYPL stock with a “buy” rating and a $69 price target.

What could catalyze a share-price rebound to the $69 area? In the near term, PayPal has a chance to shine as the company will release its third-quarter earnings results on Nov. 1.

The company has a solid track record of beating or barely missing analysts’ consensus quarterly EPS forecasts. This time around, analysts expect PayPal to report earnings of $1.23 per share.

This would only require a slight improvement over the $1.16 per share PayPal earned in the second quarter. The experts aren’t expecting anything miraculous, and investors’ pessimism could easily turn to optimism if PayPal offers any positive surprises.

PYPL Stock Is a Terrific Fintech Value Play

For now, the market is treating PayPal as if the company isn’t consistently profitable. Moreover, short-term stock traders have seemingly ignored PayPal’s second-quarter revenue growth.

PayPal might end up being a takeover target, as well. Yet, a takeover won’t be necessary to convince the market to favor PayPal in the fourth quarter.

If PayPal can deliver a mostly positive third-quarter earnings report on Nov. 1, that could catalyze a major turnaround in PYPL stock. Therefore, value seekers should seriously consider buying a few PayPal shares prior to the upcoming earnings event.

On the date of publication, David Moadel 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 Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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