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PayPal’s Stock Growth Might Continue after Its Q1 Earnings

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PayPal (NASDAQ:PYPL) stock rose around 7% in the extended trading on Wednesday after the company reported its first-quarter earnings results. The stock has also risen by as much as 10% in the pre-market trading session today. Investors seem to be impressed with the encouraging numbers in April after weak sales in March, which fueled the stock price.

PayPal stock gained 2.30% on Wednesday and closed the trading day at $128.31. At Wednesday’s closing price, the company’s market value was around $150.5 billion.

PayPal rose despite lagging estimates in Q1

PayPal reported lower-than-expected first-quarter earnings results. The company reported revenue of $4.62 billion in the first quarter. Although the revenue missed analysts’ consensus estimate of $4.74 billion, it grew 12% YoY. PayPal’s total payment volume also grew 18% annually to $191 billion even though it fell short of the consensus estimate of $195.2 billion. PayPal’s adjusted earnings of $0.66 were flat compared to the first quarter of 2019. The earnings lagged Wall Street’s estimates of $0.75 per share. The company had to create credit loss reserves in the quarter due to the negative impact of coronavirus.

Despite missing Wall Street’s numbers, investors seem to be happy with PayPal’s improving trends in April. PayPal CEO Dan Schulman thinks that people have been choosing digital payments to pay for their services amid the lockdown, which benefits the company. Schulman told MarketWatch in a report that April “was probably the strongest month for PayPal” since it split from eBay (NASDAQ:EBAY) in mid-2015. Notably, PayPal made a record of adding 7.4 million new active accounts in April. The company even witnessed its largest single day of transactions on May 1, which the previous records on Black Friday and Cyber Monday. Like PayPal, Square (NYSE:SQ) also gained from its digital service Cash App in the first quarter.

Will PayPal stock keep growing?

Like many other companies, PayPal pulled back its fiscal guidance amid uncertainty and weaker visibility in the near term due to COVID-19. However, the long-term outlook looks bright. Despite COVID-19, the stock has risen around 19% this year. PayPal stock also reached its 52-week high of $129.59 on May 6. In fact, the stock could make a new high today. The shares have risen over 12% during the trading session today as of 10:01 AM ET.

Wall Street analysts expect PayPal to post sales of $4.8 billion in the second quarter—a rise of 12.3% YoY. Analysts expect PayPal’s revenues to rise by 13.3% YoY in 2020 to $20.1 billion. The sales will likely rise by 17.7% YoY in 2021 to $23.7 billion. However, analysts expect the company’s adjusted EPS to decline by 12.4% YoY to $0.75 in the second quarter. Analysts expect the profits to rise by 4.09% YoY in 2020 to $3.23 per share and by 25.1% YoY to $4.04 per share in 2021.

If you look at the technical details, PayPal’s 14-day RSI (relative strength index) score is 67.02. The score indicates that the stock is near the overbought territory. On May 6, the stock closed near its upper Bollinger Band level of $129.78, which indicates that it’s overbought.

Looking at analysts’ expectations and technical details, I think that the stock could sustain the growth momentum in the near future.

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