PayPal(NASDAQ: PYPL) stock hasn't been for the faint of heart. Over the past five years, the shares have zoomed higher, nearly tripling in price, only to give up those gains entirely.
If you had invested $500 in PayPal stock five years ago, you'd only have roughly $295 today. The company simply hasn't proven a winning investment. But with shares trading near all-time lows, there's a chance that now is finally the time to buy.
Five years changed everything for PayPal
Five years ago, PayPal stock traded at about $100 per share. Today's share price hovers just above $60. What happened? Revenue growth fell off a cliff.
In 2021, for example, quarterly revenue growth at times exceeded 20%. The past two years, however, revenue growth has been stuck between 5% and 10%. That's not bad, but the share price took a hard hit as the market factored these lower growth rates into the stock's valuation. In 2019, PayPal stock was priced at 8 times sales. Today, the shares trade at a price-to-sales ratio of just 2.4.
What caused PayPal's declining growth rates? Two things: market saturation and mounting competition.
In 2022, PayPal's total active user base peaked at 435 million -- larger than the U.S. population. Today, that number is shrinking, and now stands at about 425 million. PayPal had grown to such a huge size that it effectively cannibalized most of its potential market. Growing competition, meanwhile, especially from peer-to-peer services like Block's Cash App, make PayPal's competitive advantages less and less significant. Meanwhile, eBay stopped using PayPal as its preferred payment method in 2021, damaging the company's market power and prestige.
Is now the time to buy?
After five years, PayPal investors don't have much to show for their patience. New investors, however, should take a closer look. In 2019, PayPal was priced as a growth company. Today, it's priced as a value stock. If management can turn growth around, the current valuation could ultimately look like a steal.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block and PayPal. The Motley Fool recommends eBay and recommends the following options: short July 2024 $52.50 calls on eBay and short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
