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PayPal Stock Price Looks Pricey; Upside is Limited in Short-Term

PayPal Shares Fall after It Misses Revenue Target, Full-Year Outlook Now Dimmer

PayPal (NYSE: PYPL) stock price has lost more than 9% of value in the last month alone after hitting an all-time high of $120 a share. Lower than expected financial numbers for the second quarter along with meeker outlook negatively impacted the stock price.

PYPL PayPal Holdings, Inc. daily Stock Chart

Before the latest selloff, the PayPal stock price has gained 35% of value since the beginning of this year. The sharp rally in PayPal stock price has increased its valuations compared to the industry average.

The stock looks expensive based on price to sales ratio of 8 and price to earnings ratio of 52, when compared to with industry average of 2 and 20 times, respectively. PYPL stock price also appears expensive based on price to book ratio of 8 relative to the industry average of 3 times.

Lower than expected financial numbers could also halt its share price performance. Although its Q2 revenue of $4.3 billion grew 12% year over year, its revenue missed consensus estimate by $28 million.

PayPal Stock Price Looks...

Moreover, the company has reduced its financial guidance for the third quarter and a full year. They now expect Q3 revenue to stand in the range of $4.33B, falling short of the $4.45B consensus. Investors blame forex pressures and delays in products integrations along with pricing changes for lower revenue outlook.

On the positive side, its earnings guidance remains robust. The company has boosted adjusted EPS outlook to $3.17 from previous guidance of $3.01; the analysts’ consensus estimate stands around $3.12.

BTIG analyst Mark Palmer says PayPal’s Q3 included “much to encourage the stock’s proponents,” but expectations had been high given the stock’s YTD climb.

Moreover, the growth in customer engagement, active accounts, and FXN merchant services remain strong. Despite some positive factors, the PayPal stock price has not been receiving support from technical factors. Its valuations are significantly higher from the industry average – which indicates that the stock is overvalued based on current financial numbers.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.