Strong Cash Yield: Is PayPal Stock A Buy?
PayPal (PYPL) could be a good pick for your portfolio, with its high cash yield, good fundamentals, and discounted valuation. Companies like this can use cash to fuel additional revenue growth, or simply pay their shareholders through dividends or buybacks. Either move makes them attractive to the market
What Is Happening With PYPL
PYPL may be down -29% so far this year but is now trading at P/S (Price-to-Sales) ratio that is at a meaningful discount to its 3-month and 2-year highs, and also belowits 3-year average.
The stock may not reflect it yet, but here is what’s going well for the company. PayPal reported 7% revenue growth in Q3 2025, with transactions per active account up 5%. Venmo’s TPV increased 14%, and BNPL volumes grew over 20%, on track for $40 billion in TPV this year. The company launched PayPal Open for businesses, a unified platform offering AI-powered insights and access to its global network. Management also raised full-year non-GAAP EPS guidance to $5.35-$5.39 and initiated a quarterly dividend.
PYPL Has Good Fundamentals
- Good Cash Yield: Not many stocks offer free cash flow yield of 9.7%, but PayPal stock does
- Strong Margin: Last 12 month operating margin of 19.2%
- Growth: Last 12 revenue growth of 4.5% – low growth, but this selection is all about high yield and margin
- Valuation: PYPL stock currently trading at 34% below 2Y high, 17% below 1M high, and at a PS lower than 3Y average.
Below is a quick comparison of PYPL fundamentals with S&P medians.
| PYPL | S&P Median | |
|---|---|---|
| Sector | Financials | – |
| Industry | Transaction & Payment Processing Services | – |
| Free Cash Flow Yield | 9.7% | 4.2% |
| Revenue Growth LTM | 4.5% | 6.1% |
| Revenue Growth 3YAVG | 6.7% | 5.4% |
| Operating Margin LTM | 19.2% | 18.8% |
| Operating Margin 3YAVG | 17.9% | 18.2% |
| LTM Operating Margin Change | 1.5% | 0.2% |
| PE Ratio | 11.7 | 23.1 |
*LTM: Last Twelve Months
But What Is The Risk Involved?
While PYPL stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. PayPal fell about 20% during the 2018 correction, dropped 31% in the Covid sell-off, and took a big hit of 84% in the recent inflation shock. Even with strong fundamentals, this stock isn’t immune to sharp declines when volatility spikes. It’s a reminder that no matter how solid a company looks, risk remains real during market stress. But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read PYPL Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
For more details and our view, see Buy or Sell PYPL Stock.
Stocks Like PYPL
Not ready to act on PYPL? Consider these alternatives:
We chose these stocks using the following criteria:
- Greater than $2 Bil in market cap
- Dipped last month & meaningfully below 2Y high
- Current P/S < last few year average
- Strong operating margin with no instances of large margin collapse
- High free cash flow yield
A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:
- Average 6-month and 12-month forward returns of 10.4% and 20.4% respectively
- Win rate (percentage of picks returning positive) of about 74% for 12-month period
- Strategy consistent across market cycles
Portfolios Beat Stock Picking
Stocks soar and sink – the key is staying invested. A balanced portfolio keeps you in the market, boosts gains and reduces single stock risk
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.