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Should You Buy PayPal (PYPL) Stock Ahead of Q2 Earnings?
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Shares of PayPal (PYPL - Free Report) surged to a new all-time high Tuesday just one day before the company is set to report its Q2 financial results, which means investors might be expecting big things from the digital payment firm. So let’s look at what they should really expect in order to see if PayPal stock might be worth buying ahead of its quarterly earnings release.
Overview
PayPal spun off from eBay (EBAY - Free Report) in July 2015. The mobile and online payment industry has expanded dramatically since then. The firm currently operates a variety of financial services and has grown through a series of acquisitions that include the widely popular peer-to-peer payment platform Venmo. PayPal boasted 237 million active account holders across its 200 markets at the end of the first quarter.
PayPal bought three companies during the first quarter alone. The firm purchased Hyperwallet in June for roughly $400 million in cash to help it expand its global payout capabilities. That same month, PayPal acquired fraud prevention and risk management firm Simility for $120 million in cash.
These purchases followed the firm’s $2.2 billion May acquisition of small business commerce platform iZettle, which operates mostly in Europe and Latin America. Meanwhile, Venmo recently secured partnerships with Uber and Grubhub in its battle with Square’s (SQ - Free Report) Cash App, as well as JPMorgan Chase’s (JPM) QuickPay with Zelle. And we can’t forget about Apple (AAPL - Free Report) and Google (GOOGL - Free Report) Pay.
Price Movement & Valuation
Shares of PYPL are up roughly 150% over the last three years, which outpaces its industry’s 68% average and crushes the S&P 500’s 36%. This outsized growth has continued over the last 24 months. But investors should note that the last six months have been less kind to PayPal, with shares up roughly 7%—including some major turbulence.
Moving on, PayPal stock is currently trading at 45.2X forward 12-month Zacks Consensus EPS estimates, which represents a significant premium compared to its industry’s 33.2X average.
Furthermore, PYPL has traded as high as 55.8X over the last year and as low as 37.1X, with a one-year median of 42.8X. Therefore, PayPal’s valuation picture doesn’t appear that attractive at its current level. But investors should remember this company is still very much in its growth and active expansion phase.
Outlook
PayPal’s Q2 revenues are expected to surge by nearly 22% to hit $3.82 billion based on our current Zacks Consensus Estimate. The firm’s fiscal 2018 revenues are projected to reach $15.41 billion, which would mark a roughly 18% climb.
The firm’s adjusted quarterly earnings are projected to pop by roughly 22% to reach $0.56 per share, while its full-year EPS figure is expected to expand by over 22.5% to $2.33.
Earnings Revisions Trends
Investors also need to get a feel for PayPal’s recent earnings revisions trends. The firm has seen mixed earnings estimate revisions activity for Q2 over the last 30 days. Meanwhile, PYPL has earned four upward earnings revisions for its current full-year against just one downward change, within the last 60 days. Plus, the firm has seen two full-year revisions, with 100% agreement to the upside, all over the last seven days.
PayPal’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $0.57 per share, which is one cent better than our current consensus estimate.
The digital payment firm has also met or topped our earnings estimates in 11 straight periods, including beats in the trailing five quarters. We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report, and PYPL stock has popped in four out of these last six windows.
Bottom Line
PayPal is currently a Zacks Rank #2 (Buy) and might be worth considering even as it sits at its new all-time high based on its top and bottom line growth projections, positive full-year earnings trends, and much more.
Make sure to check back here for our full analysis of PayPal’s actual Q2 results after market close on Wednesday!
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Should You Buy PayPal (PYPL) Stock Ahead of Q2 Earnings?
Shares of PayPal (PYPL - Free Report) surged to a new all-time high Tuesday just one day before the company is set to report its Q2 financial results, which means investors might be expecting big things from the digital payment firm. So let’s look at what they should really expect in order to see if PayPal stock might be worth buying ahead of its quarterly earnings release.
Overview
PayPal spun off from eBay (EBAY - Free Report) in July 2015. The mobile and online payment industry has expanded dramatically since then. The firm currently operates a variety of financial services and has grown through a series of acquisitions that include the widely popular peer-to-peer payment platform Venmo. PayPal boasted 237 million active account holders across its 200 markets at the end of the first quarter.
PayPal bought three companies during the first quarter alone. The firm purchased Hyperwallet in June for roughly $400 million in cash to help it expand its global payout capabilities. That same month, PayPal acquired fraud prevention and risk management firm Simility for $120 million in cash.
These purchases followed the firm’s $2.2 billion May acquisition of small business commerce platform iZettle, which operates mostly in Europe and Latin America. Meanwhile, Venmo recently secured partnerships with Uber and Grubhub in its battle with Square’s (SQ - Free Report) Cash App, as well as JPMorgan Chase’s (JPM) QuickPay with Zelle. And we can’t forget about Apple (AAPL - Free Report) and Google (GOOGL - Free Report) Pay.
Price Movement & Valuation
Shares of PYPL are up roughly 150% over the last three years, which outpaces its industry’s 68% average and crushes the S&P 500’s 36%. This outsized growth has continued over the last 24 months. But investors should note that the last six months have been less kind to PayPal, with shares up roughly 7%—including some major turbulence.
Moving on, PayPal stock is currently trading at 45.2X forward 12-month Zacks Consensus EPS estimates, which represents a significant premium compared to its industry’s 33.2X average.
Furthermore, PYPL has traded as high as 55.8X over the last year and as low as 37.1X, with a one-year median of 42.8X. Therefore, PayPal’s valuation picture doesn’t appear that attractive at its current level. But investors should remember this company is still very much in its growth and active expansion phase.
Outlook
PayPal’s Q2 revenues are expected to surge by nearly 22% to hit $3.82 billion based on our current Zacks Consensus Estimate. The firm’s fiscal 2018 revenues are projected to reach $15.41 billion, which would mark a roughly 18% climb.
The firm’s adjusted quarterly earnings are projected to pop by roughly 22% to reach $0.56 per share, while its full-year EPS figure is expected to expand by over 22.5% to $2.33.
Earnings Revisions Trends
Investors also need to get a feel for PayPal’s recent earnings revisions trends. The firm has seen mixed earnings estimate revisions activity for Q2 over the last 30 days. Meanwhile, PYPL has earned four upward earnings revisions for its current full-year against just one downward change, within the last 60 days. Plus, the firm has seen two full-year revisions, with 100% agreement to the upside, all over the last seven days.
PayPal’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $0.57 per share, which is one cent better than our current consensus estimate.
The digital payment firm has also met or topped our earnings estimates in 11 straight periods, including beats in the trailing five quarters. We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report, and PYPL stock has popped in four out of these last six windows.
Bottom Line
PayPal is currently a Zacks Rank #2 (Buy) and might be worth considering even as it sits at its new all-time high based on its top and bottom line growth projections, positive full-year earnings trends, and much more.
Make sure to check back here for our full analysis of PayPal’s actual Q2 results after market close on Wednesday!
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>