A gain of approximately 26% in 2018 for shares of PayPal Holdings, Inc. (PYPL) likely was helped by strong institutional demand for the stock. In fact, PayPal is a regular household name for Mapsignals, and I even suggested the stock as a buy opportunity last year. Since I wrote that article on July 12, 2017, PayPal stock has gained nearly 80%.
The thing that attracted me to PayPal then is occurring now – unusual trading activity. It's no secret that payment tech is growing at a fast rate, with PayPal's Venmo being a leader in the space, but even with terrific fundamentals (I'll go over them later), the true tell on the near-term trajectory of the stock lies in the trading activity. At many points in 2018, PayPal shares have increased in price alongside an increase in volume. This can be indicative of smart money accumulating shares. The bottom line here is that the manner in which a stock trades can oftentimes alert you to the forward fundamental picture more so than simply looking at a company's financials alone.
For Mapsignals, the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation. In 2018, PayPal has logged eight of these rare signals. We like to see bullish activity in the shares alongside solid forward fundamentals, as this indicates that demand for the stock should increase over time.
In the chart below, PayPal broke out to new 52-week highs on big volumes. Shares should continue the upward trajectory:
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by outsized, unusual institutional trading activity. By studying these data points, we can make an educated guess as to which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of these for PayPal are as follows:
- Year-to-date (YTD) outperformance vs. market: +17.29% vs. SPDR S&P 500 ETF (SPY)
- YTD outperformance vs. sector: +8.93% vs. Technology Select Sector SPDR ETF (XLK)
- Bullish potential accumulation signals
Below, you can see a historical showing when PayPal made buy signals for Mapsignals:
On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, PayPal has solid sales and earnings growth rates:
- One-year revenue growth rate: +22%
- One-year EPS growth rate: +29%
- Increased 2018 revenue and EPS guidance on July 25
PayPal checks the box on strong technicals and fundamentals while showing bullish institutional momentum in 2018. We believe that the current level for the shares is in position for further upside. All of this points to further long-term bullish action for the stock.
The Bottom Line
PayPal represents a potential buying opportunity for the long-term investor. Given the solid earnings growth, revenue growth and multiple unusual accumulation signals, this stock could be worth a spot in a growth-oriented portfolio.
To learn more about Mapsignals' institutional signals, please visit our "About Us" page.
Disclosure: The author holds a long position in PayPal shares at the time of publication.