We recently compiled a list of the 10 Best Undervalued Stocks to Buy According to Reddit. In this article, we are going to take a look at where PayPal Holdings, Inc. (NASDAQ:PYPL) stands against the other undervalued stocks. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.
Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.
The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.
The two major factors driving Lee’s bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.
This uncertainty about the stock market, coupled with stocks’ volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.
Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock’s actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.
Methodology
We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey’s database of 920 hedge funds for Q1 2024 was used for that purpose.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A consumer in a cafe paying for goods using a mobile payment app.
PayPal Holdings, Inc. (NASDAQ:PYPL)
Investors on Reddit that consider the stock undervalued: 12
PayPal Holdings, Inc. (NASDAQ:PYPL) is arguably among the global leaders in the fintech industry. While the company over recent years has gone out of favor with investors due to concerns of market competition and some questionable capital allocation decisions by the previous management, things appear to be turning around under the new CEO, Alex Chriss. Strong financial performance during the first quarter of the year, coupled with a focus on strategic innovation and market expansion has the potential to lure investors into buying the stock.
PayPal Holdings, Inc. (NASDAQ:PYPL)’s Complete Payments (PPCP) platform is now available in 34 countries, including the United Kingdom, Canada, and Europe. and is gaining momentum. The company has been actively venturing into the complementary side of its business as well, through the acquisition of e-commerce firm Honey in 2020 for $4 billion, and strategic investments in Uber last year.
During Q1 2024, the company reported an EPS of $1.40 per share, beating analyst estimates by 18 cents. This was primarily driven by improved transaction margins, expense discipline, optimal marketing spending, and an increase in interest income. Its revenue for the quarter was also higher, reported at $7.7 billion against forecasts of $7.51 billion. It also generated a free cash flow of $1.8 billion. Venmo is also contributing significantly to the company’s overall growth, with a 21% YoY increase in consumers using Venmo’s debit card.
PayPal Holdings, Inc. (NASDAQ:PYPL) is one of the best undervalued stocks to buy according to Reddit, currently trading at a value that is 80% lower than its all-time high and 15 times its forward earnings, making it an attractive stock for investors to buy. There is consensus among industry experts on the stock’s Buy rating with an average share price target of $72.87, which represents an upside of 22.82%. Moreover, according to Insider Monkey, 82 hedge funds were bullish on the stock at the end of the first quarter. The bearish concern about the stock, though, is that it is facing tough competition from companies like Apple and Alphabet which are entering smaller niches in the digital payments industry and coming up with apps that are easier to use.
Overall PYPL ranks 3rd on our list of the best undervalued stocks to buy according to Reddit. You can visit 10 Best Undervalued Stocks to Buy According to Reddit to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of PYPL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PYPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
