Welcome to Extreme Investor Network, where we provide unique and valuable insights into the world of investing. In this blog post, we’ll be discussing a potential opportunity in PayPal (PYPL) that you won’t want to miss.
Back in April, a bullish thesis was laid out for a turnaround at PayPal, despite the stock price slipping about 6% in the past couple of months. However, the fundamentals have continued to improve, presenting another opportunity to gain long exposure in PYPL. The risk/reward is quite attractive around the $60 level, making it a favorable entry point.
After declining nearly 80% from its peak in July of 2021, the stock has spent the last 12 months forming a bottoming formation and stabilizing its decline. The question now is, when is the stock potentially ready to breakout higher?
Looking at the longer-term chart, we see an inverted head & shoulder formation, a sign of a bearish to bullish reversal. Zooming in, the stock has been trading within a $58-68 range for about 6 months, with oversold conditions approaching the bottom end of that range. This makes adding long exposure at these levels quite attractive.
In terms of fundamentals, PYPL trades at a 25% discount to the average S&P 500 stock, despite analysts expecting the company to grow EPS by 16% and revenue by 7% over the next few years. Recent earnings beat has led to revisions higher, with improving net margins at 14%. This suggests PYPL should be trading at a slight premium to the average S&P 500 stock, indicating at least a 25-30% upside from current levels.
For investors looking to capitalize on this opportunity, options are not particularly cheap or expensive, but the skew benefits selling a put credit spread. Selling the $59/$55 put vertical at a $1.56 credit for the August 2nd weekly expiration could be a strategic move. This entails selling the Aug 2 $59 Puts at $2.90 and buying the Aug 2 $55 Puts at $1.34, with a potential profit of $156 per contract if PYPL stays above $59 at expiration.
Before making any financial decisions, it’s important to seek advice from your own financial or investment advisor. Stay tuned to Extreme Investor Network for more unique insights and opportunities in the world of investing.