PayPal Holdings Inc.: Payment Tech’s Growth Opportunity

Since PayPal’s (PYPL) earnings report on April 26 of this year, the stock has gained 22.47%, but more importantly institutional accumulation was part of this breakout story. Prior to this earnings report, the stock has been range-bound since its IPO, and since its release, the report has triggered seven days of potential institutional accumulation signals with the latest occurring on June 5, 2017.

At MAP, we look to identify stocks with unusual institutional activity to try and measure potential accumulation and distribution at the single stock level. Many of the strongest performing stocks over the past five years have exhibited continual institutional support, with two related companies – Mastercard Inc. (MA) and Visa Inc. (V) – consistently showing accumulation and returning five-year gains of 208% and 242% respectively. PayPal’s recent climb may be setting the stock up for outsized gains in years to come.

When deciding on the best candidate for long-term growth, we consider a few technical areas critical to success: recent closing 52-week highs achieved ($54.39), outperformance vs the overall market (+26.47% vs S&P 500), outperformance vs the sector (+14% vs VGT), and most importantly institutional support. We believe owning stocks we feel institutions will be attracted to is a recipe for long-term success. Additionally, key fundamental characteristics should help to support the narrative of the future growth of the company: increasing revenues (3Y sales growth +~17%), increasing EPS (3Y EPS growth +~50%), and strong forward company guidance (full year 2017 revenue and EPS raised). PayPal is firing on all cylinders technically and fundamentally, while commanding one of the highest rankings in MAP’s scoring process, suggestive of positive price momentum.

Taking a look at the overall picture of the institutional accumulation and distribution activity that we monitor on the U.S. market, signs continue to point to continual accumulation with growth equities leading the charge. The company falls into that category with a forward P/E of 37 vs 19 for the S&P 500. At the peer level, Mastercard and Visa also continue to show signs of institutional support, further supporting our focus in owning leading stocks in healthy sectors. 

 

The Bottom Line

PayPal represents a potential buying opportunity for the long-term investor. Given the recent institutional accumulation signals, high stock ranking, and recent increased guidance from the company, the stock appears poised for growth ahead. To learn more about MAP’s institutional signals please visit http://mapletter.com/about-us.html .

Disclosure: the author holds long positions in PayPal and Visa at the time of publication.

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