- Michael Burry, who predicted the housing crisis, is accumulating the PayPal stock.
- Burry believes that the company is a bargain that may become a good acquisition target.
- Technicals suggest that the stock has more downside in the near term.
PayPal stock price has collapsed in the past few years, moving from $310 in 2012 to $41.5 today. This crash has erased billions of dollars in value, with its market capitalization falling from over $360 billion to $36 billion today. Despite this crash, Michael Burry has taken a contrarian view and is actively accumulating the company’s shares.
Michael Burry is Buying PayPal Stock
In a statement last week, Michael Burry said he added to his positions in PayPal and other beaten-down technology companies, including Veeva Systems, Adobe, and Alibaba.
Burry believes the company has become highly undervalued, making it attractive to private equity firms and other companies. Indeed, media reports suggest that Stripe was considering launching a bid for the company.
PayPal’s business has slowed significantly over the past few years as competition in the industry has intensified. Most of this business has affected its unbranded business, where the company offers payment solutions to other firms. This competition is coming from BNPL platforms like Affirm and Klarna. It is also coming from companies like Stripe and Square.
PayPal’s wallet business is also facing substantial competition from firms like Google and Apple. One reason for this is that it lacks the ecosystem these companies have.
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At the same time, PayPal has suffered from CEO turnover as it sought turnaround opportunities. Its current CEO, Enrique Lores, replaced Alex Chriss, who had previously joined the company a few years ago.
Data shows that PayPal’s revenue growth has stalled, with analysts expecting the annual revenue to grow by just 3% this year to $34 billion. It will then grow by 4% next year to $35 billion.
These numbers are lower than those of other fintech companies. Visa is expected to make $45 billion, up by 14% YoY, while Mastercard is expected to grow by 13% and 12% in the next two financial years.
This slow growth explains why PayPal’s valuation multiples have declined over the past few years. It now has a forward price-to-earnings ratio of 7.82, lower than the sector median of 10. It is also lower than the five-year average of 19. The company’s forward PEG ratio of 1.10 is also lower than the five-year average of 1.6.
Therefore, while PayPal stock is a bargain, it is likely a value trap, as it lacks a clear catalyst to drive it higher in the long term.
PYPL Stock Price Technical Analysis
The weekly chart shows that the PayPal stock price has retreated in the past few months. It recently dropped below the key support level of $50.60, its lowest point in July 2023.
The stock then retested that level, in what is known as a break-and-retest pattern, a common bearish continuation sign. It has remained below the 50-week and 100-week Exponential Moving Averages (EMA).
Therefore, the path of least resistance is downward, potentially reaching the key support level at $35. A move above the key resistance at $50.60 will invalidate the bearish outlook.
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