PayPal Holdings (NASDAQ:PYPL) anticipates a challenging finish in 2023, marking its third consecutive year of stock losses. After a 62% decline in 2022, the worst since its 2015 split from eBay (NASDAQ:EBAY), and a lackluster 2021, investors are pondering whether the “law of averages” could steer PYPL towards a positive trajectory in 2024.
Despite a modest recovery from multi-year lows in 2023, the “law of averages” remains a notable factor in financial markets. In stock trading, some adhere to principles like following moving averages, while long-term investors employ strategies such as dollar-cost averaging.
Law of Averages Impact PayPal Stock
In 2023, the S&P 500 Index ($SPX) witnessed a reversal of fortune for many constituents compared to the previous year. Companies like Tesla (TSLA), Nvidia (NASDAQ:NVDA), and Meta Platforms (NASDAQ:META) experienced a turnaround, becoming top gainers after a lackluster 2022. However, PayPal stands out as one of the top 100 S&P 500 losers in 2023. Will the “law of averages” intervene in 2024, potentially triggering a rebound for PYPL stock?
Analyzing PayPal’s Struggles
Despite the disheartening trend in PayPal’s stock price, there are valid reasons for its underperformance. Challenges include a slowdown in e-commerce sales, declining revenue growth, margin pressure due to increased competition, and compression of valuation multiples amid market pessimism.
Sliver of Hope: PYPL 2024 Forecast
Despite the gloomy outlook, PayPal has undergone leadership changes, aiming to reverse its fortunes in 2024. The company remains optimistic about its network effect, with 70% of U.S. adults using PayPal in the last five years. Strategic moves, such as the launch of the Venmo Teen account and expansion into the buy-now-pay-later (BNPL) sector with the KKR partnership, are intended to broaden the company’s market reach.
In the Q3 2023 earnings call, CEO Alex Criss emphasized a focus on high-quality customer growth and profitable revenue growth. Despite losing accounts categorized as “low-quality customers,” the company is optimistic about minimizing churn. Criss acknowledged the need to address the high-cost structure and outlined plans to enhance revenue growth while reducing expenses for improved operating leverage.
Investment Perspective: PayPal Stock in 2024
Amid uncertainties, the law of averages may come into play for PYPL stock in 2024, particularly as the company refines its business strategy under new leadership. The forward price-to-earnings-to-growth multiple below 1 makes PayPal’s valuation compelling compared to broader market metrics. Overall, there’s renewed confidence in PYPL’s potential to rebound from current levels based on anticipated earnings growth and a potential expansion of valuation multiples.
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