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Should You Buy PayPal Stock For Your Retirement Portfolio?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

This is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want answer… Should You Buy PayPal Stock For Your Retirement Portfolio?

1 Reason To Avoid PayPal

  1. It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter much with PayPal (PYPL) due to its huge valuation.

PayPal is one of the worlds leading online payment processors with more than 361 million active accounts as of the end of its 3rd quarter.

And from 2012 to today, its seen large increases in both revenue and profits.

Revenue grew 256% from $5.7 billion in 2012 to $20.3 billion in the trailing twelve months (TTM) period.

EDITORS NOTE – TTM is simply the last 12 months of financial results consecutively.

This led to an increase in operating profits of 256% from $899 million in 2012 to $3.2 billion in the TTM period.

This fantastic growth in revenues and profits helped skyrocket its shares in this time.

From $34.69 per share on July 10th, 2015 to $235.77 per share as of this writing.

This is an increase of 580% in the last decade.

You’re doing well if you earn 10% investment returns per year on the stocks you own.  PayPal produced investment returns of 116% per year since it became its own company in 2015.

Note in the above chart that it only goes back to July 10th 2015… This is when PayPal was spun off from eBay and became its own company.

This is all fantastic… And has helped PayPal become one of the largest companies and financial institutions in the world.

But it also leads to a problem.

It’s massively overvalued.

Its P/E is 86.9.

Its P/CF is 46.5.

Its forward P/E is 51.3.

And its enterprise value to operating income – EV/EBIT is 62.3.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

These show PayPal is overvalued by a large amount right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With PayPal being overvalued it makes the investment riskier.

For the reason of its overvaluation, I recommend you avoid its stock right now.

Plus, there’s safer, cheaper, and higher return stocks you can buy now that I’ve already written about.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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