PayPal holdings (NASDAQ:PYPL) had a sustained growth of 1.07% year-on-year. PayPal shares have underperformed relative to other peers in recent years, facing intense competition in the digital payments market.

Despite this, I believe PayPal stock should be a moderate buy for now thanks to advancements in the service’s features, substantial growth in Venmo and Braintree, and solid financial health. PayPal should be a Buy, as I expect the stock’s fair value to hit $88.75, up 38.4%.

PayPal Stock Catalysts

The company’s main service is online money transfers. With the technology boom, competition in the fintech sector is intense. PayPal’s main catalyst is service improvements. Over the past few years, PayPal has continued to introduce numerous improvements to its service to make online money transfers faster and more secure for its customers.

In the company’s recent news articlePayPal introduces six new features to improve the checkout process for customers, most notably PayPal’s Fastlane.

Customers need to save their information once, and this new feature allows them to check out in one click without entering passwords, credit card information or additional information for future purchases.

Fastlane is determined to improve the customer experience by enhancing checkout and increasing merchant conversion rates. This feature has already proven its effectiveness by speeding up the payment process by almost 40% compared to the old method.

Fastlane could attract customers and companies of all sizes across multiple industries. While Fastlane may not impressively increase PayPal’s customer growth, it still has great innovation potential and promising success.

Another catalyst for PayPal’s growth is the contributions of Braintree and Venmo customers. Both of these platforms help diversify PayPal’s customer segments.

Venmo it has become extremely popular among the younger population due to its ease of use and peer-to-peer payments. There is even more room for expansion in Venmo’s domestic and international customer segments. In First quarter 2024Venmo saw total payment volume of $69 billion, contributing to PayPal’s TPV growth.

Additionally, Braintree contributed 13% of transaction growth and 9% of revenue growth for PayPal. The potential development of these two platforms is critical to accelerating PayPal’s growth.

Furthermore, I believe that with the arrival of the new CEO, Alex Chriss, its new management will be able to offer PayPal a sustainable growth plan for the future.

Assessment

Overall, PayPal is in solid financial health. Its revenue grows steadily throughout the year, with an increase of 8.2% for fiscal 2023. In the first quarter of 2024, the company reported a 14% increase in total payment volume.

Its active accounts stand at 427 million for the first quarter of 2024. In my opinion, these metrics indicate PayPal’s substantial position in the global digital payments market. Additionally, PayPal generates positive free cash flow on quarters.

In the first quarter of 2024, the company’s FCF was $1.8 billion. The strong cash flows suggest that PayPal’s operation is very efficient, managing its capital expenditures effectively.

The WACC is calculated on the basis of a beta of 1.42 and a cost of capital of 10.93%. We then discount the expected cash flow using the WACC of 9.8% and the terminal value of 3%. PayPal’s net asset value per share is expected to be $88.75, an upside of 38.4% from the company’s current price of $64.10.

Risk

PayPal’s underperformance in recent years is mainly due to strong competition with rivals such as Stripe, Apple Pay and Alphabet’s Google Pay. The digital payments market is becoming more and more intense as large companies enter the sector.

Furthermore, it is difficult to distinguish PayPal from other competitors since they all provide the same service: online payment. Therefore, convenient and secure payment is the only way to acquire customers.

I believe PayPal needs to constantly improve its payment features and enhance its customer experience to gain market share and accelerate its growth.

Another possible risk for PayPal is its security. Since it is a financial technology company, PayPal faces many risks related to customer privacy and card data. PayPal’s secure payment is essential for customers.

The company must secure its online payment and money transfer services to protect customer information. In my opinion, failure to scale up will have a negative impact on PayPal’s growth.

The final result on PayPal shares

In conclusion, PayPal deserves investor attention due to its advancement in service features and growth in support from Venmo and Braintree. Additionally, the company has robust free cash flow and maintains a strong user base across quarters.

These metrics indicate that the company may have the capabilities to sustain future growth. However, PayPal’s risks include strong competition and security issues. The company’s ability to improve its market position and improve its customers’ experience will justify its growth.

PayPal stock warrants a 38.4% buy, rising to $88.75 per share from the current price of $64.10.

As of the date of publication, Michael Que did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com Guidelines for publication.

The researchers who contributed to this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Michael Que is a financial writer with extensive experience in the technology industry, with his work featured on Seeking Alpha, Benzinga, and MSN Money. He is the owner of Que Capital, a research firm that combines fundamental analysis with ESG factors to select the best long-term sustainable investments.

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