New PayPal CEO Dealt a Good Elliott Wave Hand
2023.08.21 09:28
To say that PayPal (NASDAQ:) has been a volatile investment would be an understatement. The company was spun off from eBay (NASDAQ:) in 2015 and has been trading as a separate public company for over eight years now. Currently below $60 a share, the stock is up by a 56% from its IPO price of $38. That’s a decent, but far from a great return, especially when measured against the S&P 500’s 111% without the dividends. What actually happened over those eight years is far more interesting, though.
PayPal started climbing almost right away in the summer of 2015, but the stock really took off in 2020. The pandemic, coupled with the Fed’s huge stimulus campaign, gave e-commerce a massive boost. As the biggest fintech player out there, PayPal was among the most obvious beneficiaries. Its sales surged 22.2% in 2020 and then added another 19.3% in 2021.
The market was quick to extrapolate the recent past into the far future, pumping the stock to $310 a share in July, 2021. Alas, when investors realized that the 2020-2021 sales growth rate wasn’t sustainable, the share price started crashing just a fast. Last week, PayPal fell to $57.29, down 81.5% in just over two years. Is there a bottom in sight? Let’s try and find out.
PayPal-Stock Weekly Chart
The weekly chart above puts all of PayPal stock’s history into Elliott Wave context. The surge from $38 to $310 can be seen as a five-wave impulse pattern labeled (1)-(2)-(3)-(4)-(5). A three-wave correction follows every impulse and in this respect the current crash is not a surprise. It looks like a simple (a)-(b)-(c) zigzag, where wave (a) is a large impulse, while wave (c) is an ending diagonal.
Also note that strong bearish RSI divergences formed prior to the two big stock price drops. There was a bearish divergence before the Covid-19 crash of March, 2020, and another one heading into the current collapse. Now, there is a strong bullish divergence between waves (a) and (c) of II. If this analysis is correct, a notable recovery may finally be on the way for PayPal stock.
Based on valuation, a return to $300 seems next to impossible right now. That would require a P/E of 60 and higher interest rates make this a lot less likely to happen. A rally to $100-$120, on the other hand, doesn’t sound so far-fetched. Despite the fierce competition in the fintech sector, PayPal remains the leader of the pack. The company is profitable, growing and has a fortress balance sheet. Incoming CEO Alex Chriss would surely be eager to shake things up and try to bring the glory days back. The patterns seem to be giving him a promising opening hand.
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