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Shares of PayPal Holdings (NASDAQ: PYPL) stock gained 11% in March, according to data provided by S&P Global Market Intelligence. There wasn’t any big news, but investors might be recognizing that PayPal stock looks like a great value since falling to its lowest price in five years.

Has the leader in digital payments fallen behind?

PayPal stock has been falling over the past few years after hitting a peak early in the pandemic. Growth is decelerating, profits are pressured, and the feeling is that PayPal isn’t the innovative disruptor it was at the time of its initial high growth. It’s now the leader in digital payments and merchant solutions, but its size has gotten in its way. It’s facing stiff competition from small fintech companies that are finding unfilled niches within the digital financial ecosystem.

There’s still a large opportunity, and new CEO Alex Chriss is spearheading a new strategy to revitalize growth and capture market share. It’s a companywide plan that injects new objectives into all parts of the business. It involves cutting costs across the board, revamping the C-suite, and restructuring its business units, and it’s investing in precise, practical improvements like its branded checkout.

PayPal is reporting strong performance despite its challenges. Payments volume increased 15% year over year in the 2023 fourth quarter, a solid showing that illustrated its continued relevance in the digital payments chain. Revenue increased 9%, and non-GAAP (adjusted) earnings per share (EPS) increased 19% year over year.

Active accounts continued to decrease sequentially, which could be a warning signal. Management says these are accounts that aren’t engaging with the platform, and it’s focusing its resources on generating higher revenue from active, engaged accounts. Management provided 2024 guidance for mid-single-digit non-GAAP EPS growth and about a 7% increase in revenue.

PayPal stock might be undervalued

PayPal stock is down 74% over the past three years and trades at a price-to-earnings ratio of 16, or close to its lowest levels in that period. PayPal stock doesn’t look very risky at this price, but it’s also not a no-brainer stock to buy.

It stands to reason that there’s no place to go but up, considering PayPal’s large business, continued opportunity, and new growth strategy. But it’s still in flux as it changes over management and incorporates all this new direction into its operations, and these actions may not bear fruit for some time.

I was surprised to see a lot of new non-GAAP metrics and GAAP reconciliations in PayPal’s latest report, and the company listed moving stock-based compensation to non-GAAP metrics starting in the 2024 first quarter as a new action. It’s meant to bring greater accountability and transparency, but when financial statements increase in length and complication, that’s a yellow flag for me.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.

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