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Is There Opportunity in PayPal (PYPL) or Block's (SQ) Stock Near 52-Week Lows
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Innovation in the financial technology space is always abundant with PayPal (PYPL - Free Report) and Block (SQ - Free Report) still bidding to be fintech leaders but their stocks currently hover near 52-week lows.
Concerns over increasing competition and slower recovery from inflationary headwinds have set both companies back with PayPal’s stock now down -29% for the year and Block shares falling -19%. However, their outlooks are not dismal by any means and show fears of slowing growth are overdone.
Image Source: Zacks Investment Research
Undervalued EPS Growth
As inflationary concerns began to ease at the beginning of the year the earnings outlook among the broader Zacks Computer & Technology sector increased significantly. While you would think PayPal and Block are towards the bottom of the pack considering their stock performances, their EPS outlooks show this is not the case.
Image Source: Zacks Investment Research
PayPal’s growth is much slower than in the past but using the reference chart above we can see the company's anticipation of 20% EPS growth in fiscal 2023 (Chart below) is still superior to the Zacks Computer & Technology sector's 10.72% growth rate.
Furthermore, PayPal’s earnings are projected to rise another 13% in FY24 which is on par with the historical EPS growth rate of the Zacks Computer & Technology sector.
Image Source: Zacks Investment Research
Block's earnings projections are very compelling with 69% EPS growth this year and 36% growth next year hard to overlook and well above the sector.
Image Source: Zacks Investment Research
More Reasonable Valuations
High valuation concerns especially as it relates to price to earnings have been the knock-on Block’s stock more so than PayPal. With that being said, PayPal and Block’s P/E valuations are much more reasonable relative to their past.
Starting with Block, SQ shares now trade at 27X forward earnings compared to extreme historical highs when the company became profitable and a median of 259.6X. Block’s price to sales of 1.3X is attractive as well and this metric is a better way to gauge the company’s valuation until it has a longer history of profitability.
Intriguingly, Block’s P/S ratio has become very reaonable and is nicely below the optimum level of less than 2X and a noticeable discount to the S&P 500’s 3.9X.
Image Source: Zacks Investment Research
As for PayPal, its forward earnings multiple of 11.8X is 86% below the five-year high of 87.8X for PYPL and a 74% discount to the median of 45.7X. In terms of price to sales, PayPal’s P/S of 2.2X is closing in on the optimum level and attractively beneath the benchmark.
Image Source: Zacks Investment Research
Bottom Line
While the market has continued to drag PayPal and Block’s stock they are certainly making the case for being undervalued considering their above-average EPS growth. For now, these fintech players both land a Zacks Rank #3 (Hold) as the risk to reward opportunity is very favorable despite their yearly declines.
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Is There Opportunity in PayPal (PYPL) or Block's (SQ) Stock Near 52-Week Lows
Innovation in the financial technology space is always abundant with PayPal (PYPL - Free Report) and Block (SQ - Free Report) still bidding to be fintech leaders but their stocks currently hover near 52-week lows.
Concerns over increasing competition and slower recovery from inflationary headwinds have set both companies back with PayPal’s stock now down -29% for the year and Block shares falling -19%. However, their outlooks are not dismal by any means and show fears of slowing growth are overdone.
Image Source: Zacks Investment Research
Undervalued EPS Growth
As inflationary concerns began to ease at the beginning of the year the earnings outlook among the broader Zacks Computer & Technology sector increased significantly. While you would think PayPal and Block are towards the bottom of the pack considering their stock performances, their EPS outlooks show this is not the case.
Image Source: Zacks Investment Research
PayPal’s growth is much slower than in the past but using the reference chart above we can see the company's anticipation of 20% EPS growth in fiscal 2023 (Chart below) is still superior to the Zacks Computer & Technology sector's 10.72% growth rate.
Furthermore, PayPal’s earnings are projected to rise another 13% in FY24 which is on par with the historical EPS growth rate of the Zacks Computer & Technology sector.
Image Source: Zacks Investment Research
Block's earnings projections are very compelling with 69% EPS growth this year and 36% growth next year hard to overlook and well above the sector.
Image Source: Zacks Investment Research
More Reasonable Valuations
High valuation concerns especially as it relates to price to earnings have been the knock-on Block’s stock more so than PayPal. With that being said, PayPal and Block’s P/E valuations are much more reasonable relative to their past.
Starting with Block, SQ shares now trade at 27X forward earnings compared to extreme historical highs when the company became profitable and a median of 259.6X. Block’s price to sales of 1.3X is attractive as well and this metric is a better way to gauge the company’s valuation until it has a longer history of profitability.
Intriguingly, Block’s P/S ratio has become very reaonable and is nicely below the optimum level of less than 2X and a noticeable discount to the S&P 500’s 3.9X.
Image Source: Zacks Investment Research
As for PayPal, its forward earnings multiple of 11.8X is 86% below the five-year high of 87.8X for PYPL and a 74% discount to the median of 45.7X. In terms of price to sales, PayPal’s P/S of 2.2X is closing in on the optimum level and attractively beneath the benchmark.
Image Source: Zacks Investment Research
Bottom Line
While the market has continued to drag PayPal and Block’s stock they are certainly making the case for being undervalued considering their above-average EPS growth. For now, these fintech players both land a Zacks Rank #3 (Hold) as the risk to reward opportunity is very favorable despite their yearly declines.