PayPal Holdings Inc. (PYPL) had a tough time in 2021, posting a miserable 19% annual loss. However, reasons for the decline are less onerous than they seem at first glance. For starters, the stock gained an astronomical 116% in 2020 while 2021 proved the market wisdom that winners in one year become the next year’s laggards. The second reason needs little explanation, i.e. the Delta variant upended expectations that vaccines would mark the end of the pandemic.
Post-Pandemic Boom
Ironically, Omicron could mark a major turning point for PayPal. It’s ripping through world populations at a lightning pace, adding another player of immunity to vaccinations and prior infections. Taken together with new anti-COVID drugs, financial transactions could boom all across business and leisure categories in 2022, especially in the travel group. In addition, PYPL will benefit from the widening spread between soaring interest rates and the meager payout of its savings programs.
BMO Capital Market analyst James Fotheringham upgraded the stock to ‘Outperform’ last week, noting “we upgrade PYPL on valuation; relative to our estimate of +21% annual organic revenue growth potential, the historical industry-wide function implies 34x fair value. Tax loss selling is done and investors are focused on more normalized 2023 estimates for valuation; we believe payment stocks are set up constructively for this year”.
Wall Street and Technical Outlook
Wall Street consensus now stands at a ‘Strong Buy’ rating based upon 27 ‘Buy’, 6 ‘Overweight’, 4 ‘Hold’, 1 ‘Underweight’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $190 to a Street-high $342 while the stock is set to open Monday’s session nearly $3 below the low target. This humble placement confirms that PayPal is extremely oversold, setting the stage for a strong uptick that lifts well above the psychological $200 level.
PayPal broke out above resistance near 120 in May 2020, entering a powerful uptrend that more than doubled the stock price into February 2021’s all-time high at 309.14. A July breakout attempt failed, yielding a downtick that completed a double top breakdown around 232. Selling pressure eased below 180 in December but limp action through the first week of 2022 has failed to stir buying interest Even so, monthly Stochastics has dropped to the most extreme oversold reading in the company’s 6-year history, raising odds that a long-term bottom is nearly in place.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire
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