PayPal Holdings Inc. (NASDAQ:PYPL) was down 6.6% year-to-date after closing at $54.61 on October 6. With a market capitalization of $44.9 billion, the stock has performed even worse over the last 52 weeks with a change of negative 27.1%. However, the last six months represented a purple patch as PayPal gained 17.8%, compared to 33.88% for Insider Monkey Billionaire Index and 18.18% for S&P 500 ETF (SPY).
Market has clearly turned its back on PayPal at a time when the broader market had rallied. The company is carrying out its multi-year restructuring and turnaround plan under the leadership of CEO, Enrique Lores. The management aims to leverage more of AI capabilities and further advance its own technological foundation. Additionally, the restructuring efforts would enable PayPal to become more effective in its marketing spending. So how does a more streamlined approach help PayPal in prioritizing segments with higher growth potential?
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Why Has The Market Turned Away?
The underlying valuation metrics explain PayPal’s lackluster performance over the last 12 months. The stock currently trades at a trailing P/E multiple of 9.93x. Compared to that, the forward metric sits at 9.07x, which does not show a big gap. The low earnings multiples suggest investors remain skeptical about PayPal’s growth prospects, although the relatively small gap between trailing and forward P/E ratios is not, by itself, evidence of that skepticism. In isolation, these figures might suggest undervaluation of a business of this scale, with not too many doubts about its current profitability. But investors need to look beyond that.
Short interest in the stock shows little evidence of any aggressive bearish bets. A 3.84% short float indicates limited skepticism within the investor base. The short ratio sits modestly at 2.38. PayPal ranked third on our list of the 15 Best Cheap Stocks to Buy for 2026. See which two stocks ranked higher.
Are Investors Overlooking a Cash-Rich Turnaround?
Operational profitability measures support a more encouraging view of the business. Over the last twelve months, operating margin stood at 16.9% and the company delivered 14.4% in net margin. These allowed for a solid 24.5% return on equity during the stated period, after the company posted $34.13 billion in cumulative revenues. Cash generation is also a bright spot. Operating cash flow came in at $7.47 billion during the last twelve months, and levered free cash flow reached $4.42 billion. With a $44.9 billion market cap, free cash flow yield turns out to be around 10%. With that backdrop, it will be interesting to see if PayPal’s economic moat is widening or narrowing?
However, the major concern is the topline growth which remains modest. During the second quarter of fiscal 2026, PayPal generated 4.8% year-over-year revenue growth, which offers a likely explanation of why the market is reluctant to assign a higher multiple. PayPal’s GAAP operating margin also contracted 171 basis points to 16.4%, highlighting continued pressure on profitability despite revenue growth.
Institutional Sentiment
Data tracked across 1,000+ hedge funds by Insider Monkey still shows significant amount of institutional interest in the stock. This is despite a drop in the number of hedge funds holding positions. As per 13F filings, hedge fund ownership declined from 76 funds in Q1 2026 to 60 funds in the following quarter.
BlackRock is the largest institutional stakeholder in the company, as per Yahoo Finance database, holding 74.97 million shares. This translates into 8.76% ownership in the company. Other notable stakeholders include Vanguard Capital Management and State Street with 6.27% and 4.82% ownerships, respectively.
Conclusion
The overall investment case for PayPal hinges on how the company can deliver revenue growth beyond mid-single digits. Current metrics point to a highly profitable, cash-rich business being valued by the market as if its growth has stalled. PayPal’s low valuation suggests a potential bargain rather than an outright value trap, but without stronger revenue growth and sustained margin improvement, the stock could remain cheap.
While we acknowledge the risk and potential of PYPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PYPL and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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