(Please keep in mind that the author of this fundamental study is also a financial writer and portfolio manager.)
Some options traders believe PayPal, Inc. (PYPL) shares will climb by more than 7% in the next weeks. The stock has already up more than 16% in 2018, outperforming the S&P 500’s 6% gain. (For additional information, see PayPal Up 18% on Strong Growth.)
Analysts expect the payment processor’s stock to rise by up to 13% in the following months. Over the next three years, the company’s profits and sales are expected to expand rapidly. In late July, it was revealed that investor Daniel Loeb’s hedge firm Third Point had taken a position in the business, which might be another strong vote of confidence.
PYPL data by YCharts
Some options traders believe PayPal’s stock would increase to about $91 by option expiry on September 21. Since August 14, open interest in the $90 calls has almost quadrupled, reaching 18,000. The calls cost around $1 per contract, and purchasers would need the stock to increase over $91 to benefit if they held the contracts until expiry.
Analysts expect shares to rise as well, with an average price target of $97, or 13% higher than the present price of $85.50. This goal has risen from $90 in the middle of July. (For more, see PayPal Market Cap Exceeds Amex’s.)
The high profit growth is one of the reasons analysts are raising their price estimates. Analysts predict that estimates will climb by more than 23% in 2018, and by over 20% in 2019 and 2020. Revenue growth is expected to be almost as strong, growing by around 17% between 2018 and 2020.
PYPL Annual EPS Estimates data by YCharts
The stock’s value of about 30 times one-year forward projections may be a disadvantage. It gives the company a PEG ratio of roughly 1.5 for 2019, which is neither too costly nor too cheap. Furthermore, the stock’s value is now near the top of its historical range dating back to 2015.
Fundamental Chart data by YCharts
There are several reasons for traders and experts to be optimistic about PayPal in the short and long term. If the firm continues to achieve strong growth, the stock should continue to rise.
Michael Kramer is the Founder and Manager of Mott Capital Management LLC, a registered investment advisor, and the manager of the firm’s actively managed, long-only Thematic Growth Portfolio. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.
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