Because PayPal (NASDAQ:) stock appears to have exceeded its intrinsic value and may witness a pullback in price in the near term, we think it is better now to bet on quality credit services companies Visa (NYSE:), OneMain (OMF), World Acceptance (NASDAQ:), and Atlanticus (ATLC). They are well-positioned to capitalize on the increasing financial transactions with the economic recovery. Let’s discuss.One of the world’s leading digital payments companies, San Jose, Calif-based PayPal Holdings, Inc.’s (PYPL) shares have gained 37.2% in price over the past year to close yesterday’s trading session at $286.75. It is currently trading 7.5% below its 52-week high of $310.16, which it hit on July 26, 2021. However, the company is facing a class-action lawsuit that alleges violations of the Securities Exchange Act of 1934. It is alleged that its PayPal Credit business was non-compliant with applicable laws and regulations.
Also, PYPL’s 48.43% and 0.35% respective trailing-12-month gross profit margin and asset turnover ratio are lower than the 49.04% and 0.65% industry averages. The stock is also currently trading at an expensive valuation. In terms of forward EV/S ratio, PYPL’s 13.07x is 210% higher than the 4.22x industry average. In addition, the stock’s 13.09x forward P/S is 215.3% higher than the 4.15x industry average. So, it could be wise to wait for a better entry point in the stock.
However, rapid technological innovations and the recovering economy are driving the growth of the credit services sector. Also, the Federal Reserve could raise interest rates as early as 2023 and recently indicated its willingness to reduce asset purchases before the end of the year, which should help credit services companies generate better interest income.
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