Buy the dip in this fintech stock during the Nasdaq bear market?

The war on cash, a phrase which refers to the shift from physical currency to digital payments, is in full swing. By 2030, the mobile payment market is projected to reach $588 billion, equating to a 35.3% compound annual growth rate (CAGR) from 2022, according to Grand View Research. Understanding that secular trend, prudent investors should be very intrigued after seeing the Nasdaq Composite down 21% since the beginning of the year.

With many financial technology Stocks (fintech) are now trading at record lows, long-term investors have plenty of promising buying opportunities. One company in particular PayPal Holdings (PYPL 1.20%)It has caught my attention lately. The fintech giant is not only highly profitable and cash flow positive, but also dominates over 50.3% of the online payment processing environment. And despite its top-tier positioning in a massive secular growth market, the company has lost 53% of its value to date.

Let’s take a look at PayPal’s situation and determine if it’s a smart investment right now.

Close-up of person using buy now pay later app on cell phone.

Image source: Getty Images.

What’s new for PayPal?

On July 27, PayPal shares surged more than 10% after news broke that an activist investor, Elliott Management, has been steadily accumulating stock. The investment firm is suspected of planning to acquire a large stake in the company to accelerate PayPal’s cost-cutting measures. While this could be interpreted as positive news for the mobile payment company, I prefer to focus on the underlying fundamentals of its business.

According to its first-quarter earnings report, the company’s total sales grew 7.5% year-over-year to $6.5 billion, and its diluted earnings per share shrank 27.9% to finish at $0.88. Typical of many fintech companies today, management cited a number of reasons why growth is slowing, notably weakness in e-commerce, eBay‘s (EBAY) -1.04%) the ongoing transition to its own payment platform and runaway inflation that is holding back consumer spending.

Looking at other key metrics, PayPal’s total payment volume (TPV) increased 13.1% to $323 billion and added 2.4 million new accounts during the quarter to bring its total to 429 million.

Investors should anticipate a bumpy ride for the rest of 2022: Wall Street analysts estimate the company’s total revenue to rise 11.1% year-over-year to $28.2 billion, and its earnings per share they will decrease 16.3% to $3.85. However, the narrative should improve next year, with analysts forecasting growth of 16% and 23.1%, respectively. PayPal is set to release its second quarter earnings report today.

Do I recommend buying PayPal today?

For several reasons, I urge investors to consider buying PayPal stock right now. First, unlike much of its competition, the company has proven to be extremely profitable and cash flow positive, generating $1.1 billion in revenue. Free cash flow (FHR) in your first trimester only. Second, PayPal is a dominant force in a fast-growing market, and the company continues to diversify its business with offerings like peer-to-peer payment platform Venmo and a buy now, pay later option. Lastly, the stock has a price-earnings multiple of around 29 right now, a huge discount from its five-year average of over 57.

It’s clear that many investors have temporarily fallen out of love with this fintech giant, but that doesn’t mean savvy investors should shy away today.

lucas meindl has positions in PayPal Holdings. The Motley Fool has positions and recommends PayPal Holdings. The Motley Fool recommends Nasdaq and eBay and recommends the following options: $57.50 July 2022 short calls on eBay. The Motley Fool has a disclosure policy.

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