Image shown: PayPal has absolutely trounced the market since we retained it in the simulated Best Ideas Newsletter portfolio after its split from eBay.
Simulated Best Ideas Newsletter portfolio idea PayPal has trounced the market by more than 100 percentage points since it split from eBay in July 2015. We continue to like shares.
By Brian Nelson, CFA
PayPal (PYPL) split from eBay (EBAY) in July 2015, and we couldn’t be more pleased with its performance since then. The company has exceeded the market’s return by more than 100 percentage points. This is simply incredible, and we hope that you are pleased. We’re also liking how a lot of our ideas are acting with respect to relative strength in this volatile market. Look–PayPal is almost making new all-time highs!
There are a few reasons why we still love PayPal. For starters, the company’s network effect is tremendous: the more merchants that use PayPal, the more customers that use it, then the more merchants that use it, the more customers and so and so forth. This is one of the strongest competitive advantages out there. For Valuentum, which uses PayPal to securely process customer transactions, it is a must. PayPal works to keep our customer’s information safe. Your payment information is never displayed on our website.
Second, we think PayPal is an indirect and “safer” way to play cryptocurrency, but of course, this isn’t the main reason why we like the company, but it does offer some upside potential. Most of society is still conducting business by cash and check, believe it or not, so digital payment transactions will be in a secular bull market for some time, regardless, but we think PayPal is well-positioned in cryptocurrency, should that innovation truly take off. Bitcoin will have to exhibit more stability before merchants seriously consider it as a store of value though.
Third, we think PayPal’s shares are worth nearly $110 each on the basis of our fair value estimate, so we see valuation upside. Remember–the price-to-fair value estimate consideration is the primary one, and we use technical and momentum indicators to assess the likelihood of price-to-fair value convergence (read Value Trap). PayPal’s relative pricing strength is quite something, and its share price is attractive compared to our estimate of its intrinsic value.
We think the company’s shares could still have room to run from these levels.
Related: BTC, GBTC, COIN
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Brian Nelson does not own shares in any of the securities mentioned above. Some of the companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.