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Sometimes when a growth stock sees a drastic drop, it can provide an exciting buying opportunity. But, these huge plummets in share prices can also be warranted, perhaps because it was a massively overvalued investment to begin with.
This is all part and parcel of the journey when you’re investing in stocks and shares. However, there’s one investment lately that’s caught my eye and is leaving most investors divided on its future prospects.
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What’s the growth stock?
The investment in question here is PayPal (NASDAQ:PYPL). After a surging share price performance in recent years (partly due to the coronavirus pandemic growth and tech boom), PayPal’s had a tough time lately.
In just six months, the price of this once sought-after growth stock has plunged almost 60% from roughly £207 ($270) toward the end of October 2021 to just £79 ($103) at the time of writing.
Drops like this are not uncommon among high-growth equities famed for volatility. However, what’s fairly unusual is that PayPal is a well-established business that’s been around for years, and is a proven money-maker.
PayPal is not an unprofitable ‘disruptor’ stock that’s haemorrhaging money left, right, and centre. This is a firm that’s been around the block and seen plenty of payment companies come and go, falling by the wayside.
Why I think PayPal is a growth stock potentially worth me buying
The share price is making headlines, but I don’t think this is a business that’s down and out.
There are still plenty of compelling reasons why I believe this is a growth stock worth picking up and holding onto for the long haul:
- Strong record of increasing revenue year-on-year
- Healthy cash flow being injected into the company
- An ability to follow through with lots of share buybacks from a position of strength not desperation
- Massive cash reserves of around £14bn
- Huge amount of active users, including roughly 34m vendor accounts
- The company has shown it can innovate and make big moves, like with its foray into the world of crypto
Reasons I should be wary with PayPal stock
Although there are plenty of reasons I’m happy to pick up this growth stock at current price levels, I also have some reservations. Here’s why I’m wary and not diving in all guns blazing:
- Revenue growth has been slowing down, from 21% in 2020 to 18% in 2021.
- The company’s flagship P2P (peer-to-peer) payment app Venmo has also seen payment volume slow to a near standstill.
- Some suggestions that sentiment amongst younger users view the company as old hat, preferring the likes of Apple Pay.
What’s next for PayPal as a growth stock?
There’s no question that the level of growth has slowed down significantly. But, I think PayPal is an excellent buy at the current price level.
It has a massive user-base, great cashflow, and it is still growing.
It’s a company that’s not afraid to innovate or change direction, and I believe that open-mindedness is going to allow it to remain a big player in the payments sector throughout the years to come.
I don’t expect a quick bounce-back, but I’m hoping for steady and manageable growth.
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