Is PayPal Stock a Buy?

• Soaring inflation, and rising interest rates to curb it, are a huge burden for PayPal's business.
• Despite slowing growth, PayPal possesses a superb financial profile thanks to its cash generation.
• With shares down 55% this year, investors might find the current opportunity attractive.

There is a rare buy alert from the company.

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With everyone spending more time at home and avoiding in-person shopping during the depths of the Pandemic, it was a huge winner as revenue and its user base increased.

The U.S. economy seems to be slowing down in the face of rising interest rates.

In comparison to the S&P 500's decline of 24%, shares ofPayPal are down a jaw-dropping 55%. Is it a good time to buy this pioneer in the field of financial technology?

A dramatic slowdown

In the most recent quarter, the company's revenue was up just 9.1% from a year ago. In the second quarter of the year, the boost was 18.6%. Total payment volume was up 9% year over year to $340 billion. The growth rate has fallen steeply in recent quarters. The business posted a net loss of $341 million in the second quarter, its first quarterly loss in over a year.

The Federal Reserve's plan to raise interest rates to tame inflation is having an adverse effect on PayPal's business. When the economy takes a turn for the worse, the purchases that dominate its platform will be the first to go.

Due to the softer environment, management has had to lower revenue guidance twice, and now expects sales to increase 10%. The guidance for adjusted earnings per share was raised to $3.92 at the end of the year. It will be possible to achieve the profit target thanks to cost cuts this year.

Some investors worry that the macro issues aren't specific to the business of PayPal. Consumers are more budget-conscious and companies have to deal with surging inflation. It is definitely in a strong position and should be able to handle the near-term challenges.

Growth outlook

As a business, PayPal is still growing. The company counted 429 million active accounts at the end of June, which was up from the prior-year period and the second quarter. Over the past three years, revenue and earnings have grown at an average rate.

The leadership team has taken back its previous goal of hitting 750 million active accounts by the year 2025. There's a lot of potential with less than 50% consumer penetration in the U.S., Canada, and Germany.

The market is very competitive. Payments are a lucrative business model, so it's not surprising that the company has many competitors, most notably Block.

It's a cash- generating machine. Despite finishing in the red in the most recent quarter, the company is expected to produce $5 billion in free cash flow over the course of the next four years. You have a robust balance sheet if you combine this with a net cash position of $5 billion.

It's crazy to think that the growth in digital payments and e- commerce can continue indefinitely. It's not likely. The secular shift in these two areas will support PayPal's success in the future. online shopping only accounts for 20% of retail sales in the U.S.

Its current valuation

PayPal's stock is now trading at a forward price-to-earnings ratio of less than 22 months after hitting an all-time high. According to this valuation metric, shares are about half as expensive as they have been over the last five years. It might be a good time to buy the stock.

Many other businesses are facing some serious challenges. The company's dominant position in its industry, along with a strong financial profile, make for a solid investment case for investors who can look past the current economic uncertainty.

Neil Patel has positions in two companies. There's a disclosure policy at the Motley Fool.