New PayPal Price Target as Takeover Talk Could Just Be the Beginning
PayPal is rumored to have multiple suitors after the stock’s sharp plunge.
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Shares of PayPal (PYPL) shot higher by 5.7% to trade at a three-week high on word that the online payment facilitator could be an acquisition target. PayPal reportedly has an unsolicited offer from a major competitor for its entire business, as well as separate offers for specific company assets.
After Big Losses, Is PayPal a Bargain?
San Jose-based PayPal has declined by 85% since peaking at $307 nearly five years ago. Despite Monday’s rally, the stock has lost 23% since the start of this year, and 40% over the past 12 months.
PayPal saw huge gains at the start of the pandemic, rising over 116% in 2020. Since then, the shares have lost ground in four of the past five years.
Earlier this month, PayPal shares reached a multi-year low after a disastrous quarterly report. Earnings per share came in 4.4% below analysts’ estimates, while revenues missed the mark by $112 million, or 1.2%.
One bright spot in that report was the performance of PayPal subsidiary Venmo, which reported an annual growth rate of 20%. PayPal acquired Venmo in 2013, as part of its Braintree acquisition.
New Price Target for PayPal
Now that potential suitors are expressing interest in PayPal, should investors also look into the stock?
Technically, PayPal could be setting up for a rally. When the stock cratered after its February 3 earnings report, it left behind a significant gap (point A). PayPal has no obstacles to filling that gap, which would bring the stock to the $52 area. This makes $52 our new target for PayPal.
In order to fill that gap, the stock would need to rally 18%. At that point, resistance would appear, in the form of PayPal’s 50-day moving average (blue).
That moving average is currently near $53. At that point, any short term rally would likely come to an end.
The Competition Is Fierce
While a PayPal takeover could materialize, it’s difficult to imagine that a large premium would be paid above and beyond the stock’s current price. PayPal has plenty of competition, with Apple Pay (AAPL) , Google Pay (GOOGL) , and privately held Stripe leading the way.
In addition, new competition could be on the horizon. Elon Musk is positioning X (formerly Twitter) as a competitor via the X Money service. Ironically, Musk was a co-founder of PayPal.
Bottom Line
I’m taking PayPal for a short-term long trade, with a plan to sell at $52. We’ll take a loss if the stock drops below its recent multi-year low of $38.
At the time of publication, Ponsi was long PYPL and AAPL.
