PayPal Holdings (PYPL) has long been on the watchlist of value investors, but at this point, the stock no longer appears meaningfully undervalued relative to its sector. Additionally, there’s a lack of strong sentiment drivers that would suggest a high probability of outsized returns in the near term.
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While the company’s new leadership has set a clear direction, the current trajectory doesn’t justify a bullish stance. Turnaround plays tend to be most compelling when paired with deep undervaluation—something PayPal no longer offers. Given these factors, a Neutral outlook seems appropriate.
PayPal’s Robust Moat Offers Incremental Alpha
PayPal maintains a strong market position, with approximately 436 million active accounts—a 2% increase year-over-year. Despite growing competition from major players like Apple Pay (AAPL), Shopify Payments (SHOP), and Stripe, PayPal’s two-sided consumer-merchant network, bolstered by commerce-focused AI tools and omnichannel capabilities, has kept it highly relevant in today’s digital economy.
Under CEO Alex Chriss, the company has laid out a clear and focused strategy, and early execution shows promising signs of sustainable, long-term value creation. The current roadmap emphasizes margin expansion, and in Q1 2025, PayPal’s GAAP operating margin improved by 447 basis points, reaching 19.6%.
Growth in value-added services is also accelerating. Buy Now, Pay Later (BNPL) transaction volumes rose 20% year-over-year, and merchants using BNPL have seen average order values increase by roughly 62%. Similarly, those utilizing PayPal’s Working Capital loans have experienced a 36% boost in total payment volume after receiving funding. These services are driving positive, compounding effects across the platform, deepening engagement and increasing demand for PayPal’s ecosystem.
PayPal Stock Is Not as Undervalued as You Think
The broader sector is reporting a median year-over-year diluted EPS growth rate of 7%, expected to rise to about 9% next year. In comparison, PayPal is projected to deliver a normalized earnings growth rate of 10.5% in Fiscal 2026, only marginally ahead of its peers. While management’s emphasis on margin expansion and operational efficiency could potentially lift growth to the 11–12% range, such an outcome is less certain than betting on a more defined macro trend, like the robust AI-driven data center growth fueling companies such as Nvidia (NVDA).
When you compare PayPal’s forward P/E ratio of 14 with the sector’s average of 11, the stock appears to be roughly fairly valued, especially given the relatively small difference in projected earnings growth. For both value and growth investors, this suggests limited near-term upside, with returns likely to be moderate at best. According to TipRanks data, PYPL’s profit margin is stable at ~18% while quarterly revenues are consistently above $5 billion.
Technical analysis also reflects a relatively neutral market position. The 14-week Relative Strength Index (RSI) sits at 50, indicating the stock is neither overbought nor oversold. Meanwhile, the price is hovering right around the 50-week moving average—another signal that investor sentiment is in line with historical norms.
In short, the market seems to have priced in PayPal’s current fundamentals. For investors to see outsized returns from here, it would require firm conviction in the company’s ability to meaningfully expand margins or deliver a step-change in revenue growth, both of which remain uncertain.
There’s a Meaningful Chance of High-Alpha Upside
There’s a path for PayPal to potentially deliver 20%+ annual returns over the next few years—but it’s a best-case, low-probability scenario. While the upside is appealing, investing based on that bull case involves considerable risk that likely outweighs the more realistic reward.
In theory, PayPal could accelerate revenue growth to around 8% annually starting in Fiscal 2026, driven by deeper monetization, increased share of merchant spend, and stronger consumer wallet engagement. At the same time, operating margins could surpass 25% within a couple of years, thanks to a greater focus on high-margin services, disciplined cost management, scale efficiencies, and internal AI adoption.
Together, these improvements could fuel normalized EPS growth of 15% to 17.5% annually, further amplified by ongoing share repurchases. If investors re-rate the stock with a higher P/E multiple (say, 18x), the share price could climb to $120 within 18 months. While this outcome is possible, it resembles more of a speculative moonshot and is best suited for a small, turnaround-focused portion of a portfolio.
Despite the upside potential, I remain Neutral on PayPal. A more realistic scenario of 10% annual returns offers a reasonable downside cushion, but doesn’t quite justify a strong bullish position without greater confidence in execution and growth reacceleration.
Is PYPL a Buy, Sell, or Hold?
On Wall Street, PayPal has a consensus Moderate Buy rating based on ten Buys, 15 Holds, and two Sells. The average PYPL stock price target of $80.90 indicates ~10% upside potential over the next 12 months.
This appears reasonable to me and presents a rational outlook to invest in the stock. Higher than $100 in 12 months is an unreasonable expectation, and such hypergrowth can be found in other elite tech stocks. The high estimate on Wall Street is currently $96.
PayPal Is an Average Investment with Strong Potential
With PayPal stock now trading at what appears to be fair value, future shareholder returns will depend more on margin expansion than on correcting a valuation mismatch. While management plans to lean on share buybacks to enhance returns, the real driver from here will be operational execution.
PayPal still benefits from a solid competitive moat, but in today’s complex and evolving fintech landscape, other stocks offer more compelling upside, whether through earlier-stage growth opportunities or more substantial secular tailwinds. For that reason, I’m maintaining a Neutral stance on PayPal for now.