(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Some options traders are betting shares of PayPal, Inc. (PYPL) rise by over 7% over the next few weeks. The stock is already up well over 16% in 2018, better than the S&P 500's rise of just 6%. (For more, see also: PayPal Seen Jumping 18% on Strong Growth.)
Analysts see the payment processor’s stock rising too, by as much as 13% in the coming months. Forecasts are calling for strong earnings and revenue growth for the company over the next three years. Additionally, in what may be another bullish vote of confidence, it was unveiled in late July, that investor Daniel Loeb's hedge fund Third Point took a stake in the company.
Some options traders are betting shares of PayPal rise to roughly $91 by options expiration on September 21. Open interest levels for the $90 calls have nearly tripled since August 14, rising to 18,000. The calls cost roughly $1 per contract, and buyers of those calls would need the stock to rise above $91 to earn a profit if holding the contracts until expiration.
Analysts see shares rising also and have an average price target on the stock of $97, about 13% higher than the current price of approximately $85.50. That target has increased from $90 in the middle of July. (For more, see also: PayPal Market Cap Surpasses Amex's.)
One reason why analysts are upping their price targets is the strong earnings growth. Analysts are forecasting estimates to rise by more than 23% in 2018, and by roughly 20% in 2019 and 2020. The revenue growth estimates are nearly as robust, seen rising by approximately 17% from 2018 until 2020.
The one thing the stock may have going against it is its valuation of about 30 times one-year forward estimates. It gives the stock a PEG ratio for 2019 of about 1.5, which is not overly expensive, but not cheap either. Additionally, the stock's valuation is currently on the upper end of its historical range going back to 2015.
There are plenty of good reasons for traders and analysts to be bullish on PayPal over the short and long term. Should the company continue to deliver robust growth, then shares should be able to keep moving higher.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.