PayPal (PYPL) Stock Still Trades At A Discount After Russell Reclassification

PayPal Holdings has been a painful holding for many investors, with the stock down about 84.1% over the past five years. Current valuation checks still suggest the shares may be pricing in a lot of pessimism. After that long slide and a recent shift into mid cap indices, the question is whether today’s lower price now understates what the business is worth.

• Over the past five years, PayPal’s share price has fallen about 84.1%, which puts the stock in a clear reset phase compared with its earlier highs.
• Expansion of PYUSD across new payment rails and the push to tighten costs with AI initiatives can support earnings power. At the same time, tougher regulation for buy now, pay later services and rising competition in payments and stablecoins may cap how much investors are willing to pay for that growth.
• Across Simply Wall St’s checks, PayPal screens as undervalued in 5 of 6 areas, so the broader indicators lean toward the shares looking cheap rather than fully priced.

The issue now is whether PayPal’s current valuation fairly reflects the risks in its payments and PYUSD ambitions, or if the stock has been pushed too far down for the fundamentals on offer.

Find out why PayPal Holdings' -34.5% return over the last year is lagging behind its peers.

Is PayPal Holdings Still Cheap on Earnings?

The P/E ratio is a useful yardstick for PayPal Holdings because earnings are a key focus for investors watching its reset story play out. PayPal currently trades on a P/E of about 8.1x, which is well below the Diversified Financial industry average of roughly 16.0x and also below the broader peer group at about 23.4x. That places the stock on a sizeable discount to many other listed payments and financial technology companies.

The fair P/E ratio estimated for PayPal, which reflects its margins, growth expectations, size and risk profile, comes out at about 15.8x. Set against the current 8.1x multiple, the gap suggests the market is attaching a heavy discount to those earnings. Despite the recent index reclassification into mid caps and ongoing questions around areas like PYUSD and buy now, pay later, the current P/E still prices PayPal at a substantial markdown to both the tailored fair ratio and sector benchmarks.

On the P/E multiple alone, PayPal stock appears clearly undervalued compared with both its own fair ratio and the wider industry.

See what the numbers say about this price — find out in our valuation breakdown.

The PayPal Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for PayPal Holdings link the valuation gap above to concrete expectations for the company’s future growth, margins and earnings. Each narrative sets out a specific storyline for PayPal Holdings' catalysts and risks and ties that to a single fair value marker, so you can see which version of events appears to be unfolding as fresh information arrives on the Community page.

Community views on PayPal Holdings sit far apart, with one side treating it as a reset value story and the other focused on longer term competitive threats.

Bull case: 44% undervalued

"By remaining a fintech, PayPal retains the flexibility to return that excess capital to you, the shareholder, through its aggressive buyback program…"

Read the full Bull Case to see why PayPal Holdings could be undervalued

Bear case: 45% overvalued

"The rise of direct account-to-account payments and blockchain technologies is enabling merchants and consumers to bypass traditional payment processors altogether…"

Read the full Bear Case to see why PayPal Holdings could be overvalued

Do you think there's more to the story for PayPal Holdings? Head over to our Community to see what others are saying!

The Bottom Line

For investors looking at PayPal Holdings today, the key point is that the stock screens as undervalued on earnings-based multiples, even after a difficult five year period. The central question is whether current PYUSD and payments initiatives can sustain earnings power enough for that discount to close, or whether competitive and regulatory pressures keep the P/E ratio pinned down. The crux of the debate from here is whether PayPal’s lower multiple reflects an opportunity for patient investors or an accurate read on long term risks to its business model.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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