Why buying PayPal is a genius move right now

With the stock down 67% this year, today's discounted pricing could pay off big for patient investors.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Recessionary concerns, a few lackluster quarters, overpromised and underdelivered projections, and a tech crash have absolutely crushed payment processing giant PayPal Holdings, Inc. (NASDAQ: PYPL) this year. Shares are trading 67% lower than last year.

A drop like this is understandably concerning for investors, but there are several reasons it could also be a tremendous buying opportunity. Here's a closer look at why investing at today's rock-bottom prices is a genius move right now.

Making the right moves

The second quarter of 2022 was PayPal's first non-profitable quarter since its spinoff from eBay Inc.(NASDAQ: EBAY) in 2015. Its earnings per share (EPS) fell to a loss of $0.29 per share from a gain of $1.01 last year, and its operating margin dropped by around 7%.

This loss wasn't because the company did less business -- in fact, revenue was 9% higher than last year. It was related to higher costs of borrowing and increased operational costs, as well as one-time charges from new products in PayPal's investment portfolio.

On the positive side, free cash flow was up 22% year over year. Payment transactions rose 16%, boosting total payment volume (TPV) by 9%. And PayPal is directly addressing the increased cost of borrowing and operating with targeted cost-saving measures. The company plans a $900 million cost-saving initiative that should help improve its bottom line.

The fintech company also has $15.6 billion in cash and cash equivalents, and only $13.6 billion in debt, including its latest round of issuance.

Recent upgrades mean prices are likely to rise

PayPal's focused moves to improve its operational costs have given analysts a fresh outlook on the stock, prompting those from Bank of America Corporation (NYSE:BAC) and Raymond James to upgrade their ratings on PayPal over the past few weeks. Share prices haven't jumped much in response, up just 1.5% from before the upgrades, but the analyst moves are a positive sign that investor confidence may also be returning. During that same time, the S&P 500 index was down 1.5%.

Cost savings alone are not going to be enough to rally PayPal's share price back to previous highs. That will take time. Short-term headwinds will likely impact the company if a recession unfolds, as many experts are predicting. But if we think long-term, its growth prospects still look promising.

PayPal was the first payment processing company in the world. Reinventing the services it offers its customers so it can adapt to new technologies and grow is nothing new. It has sufficient cash on hand to help it withstand a downturn, and today's pricing means that investors are in an excellent position to profit if the company does make strides toward recovery.

As a long-term, patient investor, I personally believe PayPal is a genius buy right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Liz Brumer-Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal Holdings. The Motley Fool recommends eBay and recommends the following options: short October 2022 $50 calls on eBay. The Motley Fool has a disclosure policy. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended PayPal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended eBay and has recommended the following options: short October 2022 $50 calls on eBay. The Motley Fool Australia has recommended PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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