PayPal Holdings, Inc. (PYPL) stock is trading at an all-time high above $190 in Thursday's pre-market session after the electronic payments company beat second quarter 2020 estimates by healthy margins and raised third quarter and fiscal year guidance. The company posted earnings per share of $1.07, while revenue rose an impressive 22% to $5.26 billion, with positive results underpinned by the accelerated transition from paper to digital payment transactions as a result of the COVID-19 pandemic.

Key Takeaways

  • PayPal beat aggressive second quarter profit and revenue estimates.
  • The stock broke out to an all-time high after the news.
  • Strong buying volume predicts even higher prices in coming weeks.

The processor reported a 29% increase in Total Payment Volume (TPV) to $222 billion while adding 21.3 million new active accounts, marking the strongest user growth in the company's history. Additional gains are likely in coming quarters, with the world transitioning to contactless payment systems that won't spread the virus. As a result, PayPal shareholders are likely to be rewarded with even greater upside in coming quarters.

Not surprisingly, Wall Street rates the stock as a "Strong Buy," based upon 28 "Buy" and just 6 "Hold" recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $132 to a Street-high $234, while the stock will open Thursday's session about $5 below the median $198 target. This positioning bodes well for a wave of bullish commentary and higher prices.

A digital transaction is a seamless system involving one or more participants, where transactions are effected without the need for cash. Digital transactions involve a constantly evolving way of doing things in which financial technology (fintech) companies collaborate with various sectors of the economy for the purpose of meeting the increasingly sophisticated demands of the growing population of tech-savvy users.

PayPal Long-Term Chart (2015 – 2020)

Long-term chart showing the share price performance of PayPal Holdings, Inc. (PYPL) 

PayPal came public in July 2015 as an eBay Inc. (EBAY) spin-off, opening in the upper $30s and trading up to the low $40s a few weeks later. That marked the highest high for the next 15 months, ahead of a decline that posted an all-time low at $30. The stock tested that level successfully in January 2016, completing a double bottom reversal that initiated a new uptrend. Strong price action mounted the prior high in an April 2017 breakout that attracted strong buying interest.

The rally stretched into the mid-$80s in January 2018 and stalled out, yielding slightly higher highs in the summer months, followed by a modest decline into year end. Range support in the low $70s contained the downside, ahead of renewed buying interest that hit new highs in the first quarter of 2019. The upside stalled once again after topping $120 in July, while a February 2020 breakout attempt failed, giving way to a vertical decline that found support in the low $80s.

Paypal Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of PayPal Holdings, Inc. (PYPL)

The second quarter bounce reached the prior high in May and broke out, adding more than 60 points prior to last night's confessional. The uptick topped out in the low $180s earlier this month and eased into a small platform that could now support higher prices. The first upside target lies at the psychological $200 level, marking a barrier that could take time to overcome. The big unfilled gap between $129 and $139 might also come into play if broad benchmarks turn sharply lower, potentially offering a low-risk buying opportunity.

The on-balance volume (OBV) accumulation-distribution indicator has matched bullish price action since 2018, topping out in July 2019 and February 2020. It broke out to a new high with price in May and entered a sideways pattern more than two weeks before the early July peak. OBV should break out once again after the opening bell, supporting the upside, but all bets are off if it fails to post a new high in the session.

A breakaway gap is a term used in technical analysis that identifies a strong price movement through support or resistance. The price breaks away from the support or resistance via a gap, as opposed to an intraday breakout. Breakaway gaps are often seen early in a trend when the price moves out of a trading range or following a trend reversal.

The Bottom Line

PayPal stock has broken out to an all-time high after a blowout quarter, underpinned by COVID-19 tailwinds.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.