PayPal (NASDAQ: PYPL) Looks Ready To Take Another Run Towards Highs

Despite sliding more than 10% in the aftermath of their Q2 earnings, shares of PayPal (NASDAQ: PYPL) have been consolidating in recent sessions and look set to start turning north soon. The major indices all logging fresh all-time highs in recent weeks has no doubt played a part in the bears running out of steam, but there are plenty of fundamental drivers in play that make the long side more appetizing than the short. 

For starters, let’s take a look at the company’s most recent numbers which were released at the very end of last month. Bottom line EPS was solid, and almost 40% higher than what analysts were expecting while revenue was a little soft compared to the consensus, but still up an admirable 16% year on year. Keep in mind, PayPal’s earnings, like those of many consumer-focused businesses, are starting to lap the red hot quarters of 2020 which were in part fuelled by a nationwide lockdown and a once-in-a-decade kind of jump-in e-commerce sales. This means investors and Wall Street alike will have to adjust their expectations from the jaw-dropping growth figures posted last year to more sustainable long-term numbers this year. 

Softer Growth Numbers

PayPal’s management went to some lengths to help set these expectations accordingly. They see Q3 revenue coming in around $6.15-$6.25 billion versus the prior consensus of $6.45 billion. They’re now expecting Q3 EPS to hit around $1.07 versus analyst estimates of $1.14 while in terms of full-year revenue guidance, analysts had been looking for something around $25.82 billion but the latest update from management has them aiming for $25.75 billion. While these are all adjustments to the downside, we’re not talking major numbers, and based on PayPal’s history of crushing expectations on the day, you’d be inclined to say they won’t have much trouble trumping the latest guidance they’ve just shared. 

But for investors with a long-term view, the unexpected wobble has opened up a potential buying opportunity. PayPal shares had been trading at all-time highs right before July’s earnings report and it could be argued that the soft guidance helped take some steam out of them which sets the scene up nicely for a fresh rally to start through the rest of Q3 and into Q4. 

Long Term Potential

Let’s not kid ourselves, PayPal is a fintech titan that is growing at an astonishing rate. They processed 4.7 billion payment transactions last quarter, which was 27% more than the number from the same quarter last year and the number of their total active accounts has just crossed 400 million for the first time. E-commerce is only getting bigger and PayPal is extremely well positioned to continue capturing market share as one of the world’s most preferred payment methods. 

Investors thinking about establishing a position have a well established line of support around $270 to base an entry point off, and this doubles as an easy stop loss if for whatever reason shares turn south. But overall, you’ve got to be thinking that the risk/reward profile is pretty favorable here and this would have played a significant role in Melvin Capital establishing a fresh potion in PayPal shares last week. The likes of Bank of America have been reiterating their Buy ratings and lofty price targets, and theirs suggest there’s upside to be had in the region of 15% from current prices. 

If shares start trending up in the coming sessions, look for some resistance to kick in around the $308 level which is where they turned back last month and in February. Ideally we’ll see higher highs supporting the move higher, with bullish technicals backing it up. On this last point, it’s worth noting that the stock’s MACD line is on the verge of a bullish crossover while the RSI is starting to move away from oversold levels, suggesting the bears have thrown in the towel for now and that the bulls are about to take back control.