PayPal: A Cautionary Tale of Contrarian Buying Amidst Valuation Woes

PayPal's post-Q4 selloff has led to a cheap valuation, but value investors should be cautious as shares could get cheaper if the company's growth slows down. Tamer Soliman, a neutral analyst, notes that contrarians buying the dip could be painful. Soliman believes there is a significant risk that shares could decline further if PayPal's growth slows down.

PayPal's post-Q4 selloff has led to a cheap valuation, but value investors should be cautious as shares could get cheaper if the company's growth slows down. Tamer Soliman, a neutral analyst, notes that contrarians buying the dip could be painful. Soliman believes there is a significant risk that shares could decline further if PayPal's growth slows down [1].

PayPal Holdings, Inc. (NASDAQ:PYPL) experienced a 9% drop in stock price on July 29 after reporting its second-quarter financial results. The company's free cash flow (FCF) fell by 49% year-over-year, which was seen as a negative sign by investors. However, management maintains its full-year forecast of $6 billion to $7 billion in FCF for 2025 [2].

Despite the selloff, PayPal's second-quarter earnings per share (EPS) increased by 20% year-over-year, primarily due to stock buybacks and increased transaction margins. The company's transaction margin dollars rose by 7%, outpacing its 5% revenue growth. Active accounts, however, only increased by 2%, indicating a potential slowdown in user growth [2].

The selloff has brought PayPal's price to a more attractive valuation, with some analysts suggesting it could be a buying opportunity. However, the risk of further decline is significant if PayPal's growth slows down. Tamer Soliman, a neutral analyst, warns that contrarians buying the dip could face substantial losses if the company's growth does not meet expectations.

Institutional investors have been active in PayPal, with several large investors boosting their holdings in the last quarter. Capital Research Global Investors, for example, increased its stake by 108.2%, now owning 17.92 million shares valued at $1.53 billion [1]. Despite this support, the risk of further decline remains a concern for value investors.

References:
[1] https://www.marketbeat.com/instant-alerts/william-blair-has-positive-forecast-for-paypal-q4-earnings-2025-08-01/
[2] https://www.aol.com/paypal-stock-dropped-9-earnings-080000386.html