Why You Should Buy PayPal, and What Jim Cramer Thinks
The electronic payments market is changing quickly. Competitors, such as Apple (AAPL) - Get Report and Square (SQ) - Get Report , are entering the sector. But don't worry about PayPal (PYPL) - Get Report . The company reports second-quarter results late Thursday.
TheStreet's Jim Cramer thinks PayPal's earnings winning streak could continue. PayPal is a holding in Cramer's Action Alerts PLUS portfolio. In a recent note, he and co-manager Jack Mohr wrote that since going public, the company has exceeded earnings per share and revenue in the last three quarters.
Still, "We believe a roughly 2% weighting in the portfolio is an appropriate level given the stock's volatility, the regulatory risks and unknowns associated with the digital payments business, and the frequent swings in sentiment that are difficult to predict," they wrote.
PayPal is a holding in Jim Cramer'sAction Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells PYPL? Learn more now.
PayPal's stock chart still points to an additional rise of 5% to 10% following its earnings announcement. This would still leave room for the stock to reach its consensus price target of $44. Take a look at the chart, courtesy of TradingView.
PYPL trades around $39, which is firmly above its key moving averages: the 20-day ($37.06 -- blue line), 50-day ($37.82 -- pink line) and 100-day ($10.63 -- yellow line) benchmarks. These moves have put the stock up 8.8% year to date, including some 22% gains in the past six months, compared to a 5.9% rise in the S&P 500 (SPX) .
The chart shows the stock has battled resistance at around $40 per share (thin red line) on multiple occasions, including three times in the past five trading sessions. Thursday announcement and a potential deal with Visa, or another payments company, can push the shares beyond resistance towards its March high of $41.75, breaking resistance at $41.30 (thick red line) for a 6% move. Once that threshold is met, $43.50 to $44.50 becomes the next range, marking a rise of 10% to 13%.
Fundamentally, slower total payment volume growth on Thursday could weigh on the results, given that PayPal is facing much tougher comparisons from the year-ago quarter. Plus, with the United Kingdom being the company's second-biggest market, PayPal's guidance could be weak on continuing Brexit uncertainty. These scenarios are known and priced into the stock.
The company, which has steadily grown market share and its customer base, could also offset near-term weakness with higher transaction revenues. With PayPal's technical metrics becoming more of a driving force, betting against the stock would be a mistake.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.