Key Points
-
Stripe and Advent International are offering $60.50 per share for PayPal, sending the stock higher.
-
Initial reports suggest that the company’s board think the deal undervalues the company, however.
-
PayPal’s massive user base, Venmo app, and relatively discounted valuation make it an attractive takeover target.
- 10 stocks we like better than PayPal ›
Shares of popular digital payments platform, PayPal (NASDAQ: PYPL), soared 23% this week (as of noon ET on Friday) after payments peer Stripe and private equity firm Advent International offered to buy the company for $60.50 per share. After months of speculation that a union between the companies might be in the works, the market finally has a tangible offer price to digest.
However, while shares have soared on the potential deal, it seems to be far from a “lock” to reach the finish line. Reuters reported that PayPal’s board — according to a person familiar with the matter — believes the deal undervalues the company’s long-term potential as it executes upon its turnaround strategy. The company’s board is not alone in this thinking.
Famed investor Michael Burry, the focus of “The Big Short” for his bet against the housing market, believes the deal greatly undervalues PayPal. Using his intrinsic value methodology, Burry believes PayPal is worth closer to $110 or $115 — roughly 80% higher than this week’s $60.50 offer. With PayPal trading at just 10.5 times earnings — even after this week’s rise — I would tend to agree and intend to hold my shares until we see what finally happens.
Ultimately, PayPal’s growth story is in the rearview mirror, but the market’s pricing on the stock already accounts for that, in my opinion. I believe this is especially true when you consider PayPal’s businesses from a “sum-of-the-parts” perspective. PayPal’s businesses include its namesake payment processing, its white-label Braintree operations, its growing suite of financial services, and its crown jewel, Venmo, a peer-to-peer payments app with nearly 100 million users. Whereas PayPal as a whole isn’t a growth story anymore, Venmo has grown total payment volume by double-digits for six straight quarters and would undoubtedly be appealing to Stripe.
Time will tell whether higher offers come in for PayPal’s shares, but I’m happy to keep holding in the meantime, as I view PYPL shares as undervalued enough to hold right now — though a declined offer could weigh on shares.
Should you buy stock in PayPal right now?
Before you buy stock in PayPal, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PayPal wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $400,964!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,272,955!*
Now, it’s worth noting Stock Advisor’s total average return is 930% — a market-crushing outperformance compared to 210% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Josh Kohn-Lindquist has positions in PayPal. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.
