How to Trade PayPal's 80% Surge on Digital Payment Boom
The digital payments sector has been booming in recent years. There were rumours of analysts forecasting digital payment company PayPal to be the next $1 trillion company!
But, could the recent 40% drop in PayPal’s share price now be suitable for a long-term value portfolio?
Most analysts are still bullish on the stock, even though there is more competition than ever before in the sector.
Some are even calling for a move back to its all-time high which would result in a near 80% gain from current levels. Learn more, including how to trade it below.
|Stock:||PayPal Holdings Inc|
|Symbol for Invest.MT5 Account:||PYPL|
|Date of Idea:||2 December 2021|
|Time Line:||1 - 3 months|
|Position Size for Invest.MT5 Account:||Max 7%|
- The Invest.MT5 account allows you to buy real stocks and shares from 15 of the largest stock exchanges in the world.
All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing.
Why Trade PayPal Shares?
With the recent decline in PayPal’s share price, many investors are now researching the company to identify its long-term prospects. Is PayPal a high-quality stock? Is it trading at a discount after the largest retracement in its entire history as a publicly-traded company? What is the sentiment from larger institutions? Let’s take a look!
Reason 1: User engagement and user growth are rising
Two of the most important metrics for a technology company is user growth and user engagement. In the Q3 2021 earnings report, PayPal added around 13 million new accounts to its books. User engagement is also up year on year.
The company also added 1.2 million new merchant accounts to its business with the total payment volume increasing 24% year on year to $310 billion in the third quarter.
This means more people are using PayPal’s services which is likely to result in more business revenue and general confidence from investors.
Reason 2: PayPal has some interesting projects on the horizon
PayPal recently announced a new partnership with Amazon in which the e-commerce platform will allow customers to pay with the PayPal Venmo platform. This could be a huge additional revenue stream when it picks up.
The cryptocurrency boom also can help PayPal to grow exponentially. Currently, PayPal provides customers with the option to automatically purchase cryptocurrencies using cashback earned from purchases. The new digital wallet also allows users to buy, store and sell cryptos.
PayPal has recently entered the Buy Now Pay Later market. This is a new, yet fast-growing sector that could lead to exponential growth if PayPal gets the model right. They have started by acquiring Paidy for $2.7 billion – a deferred online payment system in the world’s third-largest e-commerce market Japan.
Reason 3: Supply chain issues are coming to an end
One of the reasons for the sharp sell-off in PayPal’s share price is due to forward guidance from the CEO that missed analyst expectations. In the earnings call, PayPal CEO Dan Schulman said revenue would increase in 2022 by 18% which would equal around $30 billion. The market was expecting $31.6 billion.
The lowered forward guidance is simply down to supply chain constraints experienced in their merchants’ businesses, as well as an absence of stimulus payments and more people choosing to shop in-store as the economy reopens.
As these are all temporary issues, investors may start to see the growth in the financial numbers once again.
What are Analysts Forecasting for PayPal Stock?
According to analysts polled by MarketBeat there are currently a higher amount of buy ratings on PayPal stock than sell ratings. The buy ratings have also increased in number over the last 3 months, suggesting a more positive trend.
Source: MarketBeat, 1 December 2021
An Example Trading Idea for PayPal
An example trading idea for PayPal could be as follows:
- Buy the stock on a break above $190.00.
- Target the highest analyst price target at $350.
- Keep your risk small at a maximum of 7% of your total account.
- Time Line = 1 – 3 months
- If you buy 10 PayPal shares:
- If target is reached = $1,650 profit ($350 - $190 *10 shares).
It’s unlikely the share price will go up in a straight line and it may even go much further down before it rises. Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.
Another factor to consider is the commission as these can eat into your profits. With the Admirals Invest.MT5 account you can buy US stocks from $0.02 per share. This means buying 10 shares in PayPal would result in a commission of $0.20 ($0.02 * 10 shares).
There is a low minimum transaction fee of $1. So, the example trading idea above would result in a commission of just $1 overall!
How to Buy PayPal Shares in 4 Steps
With Admirals, you can buy shares in US companies like PayPal with a low commission of just $0.02 per share and a low minimum commission of just $1.
- Open an account with Admirals to access the Trader’s Room.
- Click on Trade on one of your live or demo accounts to open the web platform.
- Search for PayPal at the bottom of the Market Watch window and drag the symbol onto the chart.
- Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.
Source: Admirals MetaTrader 5 Web. Past performance is not a reliable indicator of future results, or future performance.
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Do You See PayPal Moving Differently?
Remember that all analytics and trading ideas are based on the personal view and experience of the author.
If you believe there is a higher chance PayPal's share price will move lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide.
This means you can trade long and short to potentially profit from rising and falling stock prices. Learn more about CFDs in this How to Trade CFDs article.
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