How to Profit From PayPal Stock's Pre-Earnings Dip

Could strong earnings spark another bull run for PYPL?

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PayPal Holdings, Inc. (NASDAQ:PYPL) is one of the biggest financial technology companies in the world. PYPL operates as a payment processor for online vendors, auction sites, and many other commercial users, for which it charges a fee. The PayPal platform supports more than 400 million consumers and merchants in more than 200 markets, serving as an electronic alternative to traditional paper methods such as checks and money orders.

PayPal is scheduled to release its third quarter earnings after the market close today. Wall Street analysts expect that the fintech company will report earnings of $1.07. Analysts have PYPL’s forward price-earnings ratio at 38.46, meaning the firm is expected to see a significant growth in earnings. It would also mean PayPal stock would be trading at a price-earnings ratio it hasn’t seen since the early days of the pandemic in spring of 2020. This quarterly report comes just a few weeks after PayPal addressed Pinterest (PIN) acquisition rumors.

PayPal stock is up 13.3% year-over-year, though it's fallen back below its year-to-date breakeven in recent sessions. Despite this, the stock looks to have found support at the $224.50 level, which captured several pullbacks earlier in the year. It's worth noting that the equity has a low 14-day relative strength index (RSI) of 15, indicating it's extremely oversold, and a short-term bounce could be on the horizon. 

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From a fundamental point of view, PayPal stock continues to be an intriguing growth play, even at a market capitalization of $265 billion. The company has maintained strong and consistent growth over the past few years, increasing revenues and net income by 82% and 171%, respectively, since fiscal 2017. In addition, PayPal holds a stable balance sheet with $12.4 billion in cash and $9.7 billion in total debt.

Moreover, PayPal stock currently trades at a price-earnings ratio of 55.07, which is a rich valuation but not uncommon for the online payments giant. Overall, it is difficult to imagine PayPal stock being unsuccessful in the long-term, thus making PYPL's bearish form in recent months a great buying opportunity before the stock starts to gain momentum once again.

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