It's finally time to start buying PayPal

[After avoiding it for the last 12 months, I reckon the shares are finally cheap.](https://valuationbot.ai/blog/my-analyst-finally-thinks-i-should-buy-paypal?refresh=1770282876929)  # Executive summary * **Company:** PayPal Holdings, Inc. * **Ticker:** PYPL * **Recommendation:** Strong Buy * **Current price:** US$41.03 * **Estimated value:** US$88.79 * **Upside:** 116.4% * **Expected IRR:** 16.2% # Investment thesis PayPal looks mispriced at around US$41 a share. At that level, the market seems to be saying the company has turned into a tired payments utility: growth barely above inflation, profits structurally lower than they used to be, and returns on equity that never really recover. I do not buy that story. I think PayPal is still a scaled network with room for steady improvement, and that is enough to justify a much higher value. The cleanest way to see the debate is to compare what the price implies with what the business has been doing. The implied “steady state” behind today’s valuation is roughly: revenue growth of about 2.7 per cent, a net income margin around 9.6 per cent, and return on equity near 8 per cent. That is not a temporary wobble. It is a verdict that PayPal’s economics have broken for good. Yet PayPal still operates at a size that most rivals would envy. In 2025 it processed about US$1.79 trillion of total payment volume, with that volume growing roughly 7 per cent year on year. Net revenues were about US$33.2 billion. At that scale, small changes in conversion, mix, and product take-up matter. A firm does not need to “win” the market to compound. It just needs to stop leaking value and run the machine well. I find the unit economics helpful because they keep me honest. PayPal had about 439 million active accounts in 2025. That works out at roughly US$76 of revenue per active account per year. Operating expenses were about US$27.1 billion, or roughly US$62 per account. The implied contribution is about US$14 per account, close to an 18 per cent margin. These are not the numbers of a business that has forgotten how to make money. They are the numbers of a mature platform that needs discipline. That is why I am willing to underwrite a base case with around 5 per cent annual revenue growth and a steady net margin around 18 per cent. This is not a “back to the glory days” forecast. It is a bet on middling, repeatable progress. Where might that progress come from? First, PayPal can still grow without a dramatic share grab. With hundreds of millions of accounts and high transaction frequency per account, it can add value by improving the checkout experience, tightening merchant tools, and leaning into areas where it earns better fees. Cross-border volume is a good example. It is a minority of total payment volume, but it tends to carry higher economics. Shifts like that do not make headlines, but they move the numbers. Second, self-help can do a lot of work in a business with a large fixed cost base. Payments has unavoidable costs in technology, risk, and compliance. Once those are in place, incremental revenue should fall through at better margins, as long as the firm does not chase growth with reckless incentives. PayPal has also flagged cost actions that should create real savings over time. I do not need a miracle. I need costs to rise more slowly than revenue for a few years. Third, capital returns can lift per-share value even if the top line stays boring. PayPal has been generating large amounts of free cash flow to equity. If it uses that cash to buy back shares at depressed prices, it can raise earnings per share and shrink the equity base. That is how return on equity recovers in a mature business: not through exotic financial engineering, but through a steady mix of profit and repurchases. Put those pieces together and a mid-teens return on equity looks plausible. I am not assuming perfection. I am assuming competence. On valuation, I keep coming back to two anchors. One is a discounted cash flow view. Using a cost of equity around 9.6 per cent and a long-run growth rate around 3.5 per cent, a base-case value lands near US$89 a share. A sensible range is wide, because the debate is really about the steady margin and the steady growth rate. In a weaker case, I can get to roughly US$55. In a stronger case, where growth is a bit higher and margins grind up, I can justify something like US$125. What matters is not the precise decimal. What matters is the message: at US$41, the market is already pricing in a harsh outcome. The other anchor is simple multiples. PayPal looks unusually cheap on common measures: price to sales around 1.2 times, price to earnings around 6.9 times, and price to book around 1.2 times. Those numbers are not “proof” of value on their own, but they do tell me the market is not paying for much. If the company merely stabilises perceptions and nudges expectations up from “utility” to “mature compounder”, the share price does not need a heroic multiple to move a long way. What would change minds? I would watch three things through 2026. The first is the pace of net revenue growth. If PayPal can keep growth closer to 5 per cent than 3 per cent, it undermines the idea that the platform is ex-growth. The second is evidence that costs are being brought under control in a way that shows up in margins, not just in slide decks. The third is the tempo of buybacks and how that affects per-share results. If management keeps shrinking the share count while holding profitability, return on equity will not stay stuck in single digits for long. I also take the risks seriously, because they are easy to wave away until they bite. Competition is the obvious one. Price pressure in unbranded processing is real, and big platforms have the power to steer users at checkout. If PayPal has to pay up to keep volume, revenue growth and take rates can disappoint. Regulation and compliance are another slow grind. Payments firms do not get to choose whether rules get tighter, and the cost of staying on the right side of regulators can eat into margins. Credit is the third. Products like buy now pay later and consumer credit can boost revenue, but they can also turn nasty in a downturn if losses rise or funding becomes more expensive. Finally, capital returns are not automatic. Share-based compensation and slower repurchases can dilute the very per-share story I am relying on. Still, I come back to the same point. At US$41, the market is already treating these risks as destiny. I do not think they are. I think PayPal can remain a large, cash-generative network, and that modest execution is enough to create a big gap between price and value. Not financial advice. # Resources * PYPL\_PayPalHoldingsInc\_05Feb2026\_model.xlsx -- [Download](https://valuationbot.ai/api/blog-files/65017afd-0ba9-43cc-9bda-aa26f30d502d.xlsx) * PYPL\_PayPalHoldingsInc\_05Feb2026\_report.pdf -- [Download](https://valuationbot.ai/api/blog-files/ddab6dde-6afe-4cbb-8d8c-837657193e85.pdf)