PayPal Holdings stock has had a difficult five year stretch, with the share price materially lower over that period even though recent months have seen some recovery. The key question for investors is whether the current valuation still reflects that longer term setback or whether the stock has already reset to a more balanced level.

• The share price has fallen 78.3% over five years, which puts a clear focus on whether the current level already prices in most of the earlier optimism that has since unwound.
• Expanding use cases for PayPal and Venmo, including new tuition payment integrations with U.S. universities, can support the case that the payments franchise remains relevant. At the same time, competitive moves by peers and potential industry consolidation may cap how much value investors are willing to place on future growth.
• On a broad set of checks, PayPal screens cheap, with a high value score of 5 that suggests the current market price leans toward a discount rather than a premium.

For investors, the debate is whether PayPal's recent stabilisation and product momentum justify a rerating from here or whether the long slide in the share price already reflects a fair appraisal of the business.

Spot potential rebound candidates alongside PayPal Holdings by scanning our curated list of 51 high quality undervalued stocks.

Does PayPal Holdings Look Undervalued on Earnings?

P/E is a useful yardstick for PayPal Holdings because the company currently reports positive earnings. PayPal trades on a P/E of 10.8x, which is well below the Diversified Financial industry average of 17.7x and also far under the peer group average of 55.8x. That alone signals the market is putting a relatively low earnings multiple on the stock compared with many other listed payment and financial technology companies.

The Fair Ratio model, which looks at PayPal’s growth profile, margins, size and risk factors in a more tailored way, suggests a P/E of 16.2x could be more in line with those fundamentals. This is meaningfully higher than the current 10.8x level. Despite recent headlines around Venmo growth and product rollouts in areas like tuition payments, the stock still trades at a discount to both the Fair Ratio and broader industry benchmarks.

On the P/E multiple alone, PayPal Holdings appears undervalued relative to what its earnings profile and sector comparisons would typically imply.

The PayPal Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for PayPal Holdings build on this valuation gap by spelling out which growth, margin and earnings paths would need to play out for the stock to trade materially higher or lower than today. Each narrative ties its number to a concrete view of how PayPal Holdings' future revenue, profitability and risks could develop, which you can revisit as fresh results and competitive updates come through.

Community views on PayPal Holdings are split between those who see a clearer value story and those who think recent pricing already reflects the main upside.

Bull case: 25% undervalued

"By remaining a fintech, PayPal retains the flexibility to return that excess capital to you, the shareholder, through its aggressive buyback program…"

Bear case: roughly fairly valued

"The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced…"

Do you think there's more to the story for PayPal Holdings? Head over to our Community to see what others are saying!

The Bottom Line

PayPal Holdings screens as undervalued on earnings, with the current P/E sitting well below both its tailored Fair Ratio and sector averages. For you, the key question is whether that discount reflects excessive pessimism or a reasonable view of competitive pressure and execution risk. The crux of the debate is whether PayPal can sustain its payments relevance and product momentum in a crowded market so that the market multiple eventually moves closer to peers, rather than the stock remaining a value trap.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.