Why PayPal Stock Just Crashed
Key Points
PayPal had an offer in hand for $60.50 -- and turned it down, refusing to sell itself.
Investors didn't like that, and now PayPal stock is down 12%.
Easy come, easy go. Six weeks ago, PayPal Holdings (NASDAQ: PYPL) stock went to the moon on reports that the privately held companies Stripe and Advent were offering to buy out PayPal for $53 billion.
Six weeks later, that deal is now dead.
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PayPal declined
Reports at the time had Stripe and Advent teaming up with publicly traded Block (NYSE: XYZ) to offer $60.50 per share to acquire each share outstanding of PayPal's stock -- a 28% premium to the then-current share price, but still a bargain price at only 11.3 times earnings.
PayPal, unfortunately, was unenthused with the offer and wanted more money -- which the bidders were not willing to pay. Media reports today have Stripe and Advent retracting their offer, and now PayPal stock is in freefall. (I warned you this might happen, by the way.)
As of 1 p.m. ET Friday, the stock is down 12.2% and trading below $54.
What's next for PayPal?
But here's the thing: $54 isn't $60.50 -- but even $54 per share is $8 more than PayPal stock fetched before Stripe and Advent advertised their interest in the firm, reminding investors of just how cheap PayPal stock had gotten. Even without a buyout, therefore, this hasn't been a total loss for PayPal shareholders.
What's more, now that people are paying attention, a different suitor may emerge and offer to pay even more for PayPal. After all, PayPal stock still trades for less than 12 times earnings, and is even cheaper when valued on its superior free cash flow -- about 8x FCF.
With a dividend yield hovering around 1%, and analysts forecasting at least 6% annual earnings growth over the next five years, the worst I can say is that PayPal looks fairly valued. It might easily be cheap enough to buy.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block and PayPal. The Motley Fool recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.