PayPal: An Undervalued Gem in the Payments Space

Aldel Galo | March 12, 2024

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While PayPal (PYPL) has struggled with profitability and sentiment in the face of recent market challenges, I believe the stock represents a significant bargain. My DCF analysis, supported by industry trends and strategic shifts, indicates the potential for considerable upside.

Why PayPal is Poised for a Rebound

  1. Evolving Industry, Established Leader: The digital payments market is vast and growing. Though competition is fierce, PayPal’s market share and strong brand reputation position it for sustained growth.
  2. Margin Rebound and Focus on Profitability: PayPal’s recent layoffs and its stated commitment to “profitable growth” signal a focus on improving margins. This shift, while causing a short-term EPS impact, sets the stage for long-term strength.
  3. Innovation Investment: Despite near-term EPS expectations, PayPal’s planned boost in innovation investment in 2024 indicates a strong view towards future competitive positioning. This approach is essential for staying ahead in a dynamic industry.
  4. Undervaluation Opportunity: The stock’s current weakness is at odds with its potential. Using conservative DCF assumptions, I calculate a fair share price of $80, implying a 36% upside. Even factoring in modest growth, PYPL appears undervalued.

Assessment of PayPal’s Strengths and Risks


Market Position: Deep penetration in the digital payments industry with significant volume, fueling potential growth.
Margin Improvement Trend: The company is actively addressing profitability, positioning it for sustainable long-term gains.
Innovation Commitment: Reinvestment in the platform is crucial to maintaining a competitive edge.


Intensified Competition: Big tech and established players in digital payments pose a continuous threat to market share. Vigilance and strategic innovation will be key.
Cybersecurity: Maintaining a safe platform is paramount. Breaches could significantly damage the company’s reputation and customer trust.
Reputational Vulnerability: PayPal must communicate clearly and strategically to avoid fueling negative sentiment that could further depress the stock price.

Insights and Recommendations

While risks in the payments sector must be acknowledged, I believe that PayPal’s current valuation significantly underestimates its future potential. The market appears to be overly focused on short-term issues, overlooking the company’s solid foundation, profitability focus, and commitment to innovation.

My DCF model, even with conservative assumptions, suggests PayPal has substantial room for growth. Therefore, I assign PYPL a “Strong Buy” rating and see a clear path to value unlock, especially for investors with a moderate risk tolerance and a long-term horizon.

Important Notes

Market Factors: Investor sentiment and broader market trends can influence PayPal’s stock price alongside company fundamentals.
Further Analysis: This evaluation serves as a starting point. Consider conducting additional research to validate these findings and gain a richer understanding of PayPal’s specific opportunities and challenges.