PayPal Holdings Inc (NASDAQ:PYPL) Emerges as a Quality Investment Candidate on Caviar Cruise Screen

Digital payment processor PayPal Holdings Inc (NASDAQ:PYPL) has become a noteworthy option for quality investors using the Caviar Cruise screening method. This systematic process finds companies with solid past results, high profitability, good financial condition, and lasting business models, features that match with long-term buy-and-hold plans.

The Caviar Cruise screen, based on quality investing ideas, concentrates on measurable numbers that show business strength. This method highlights companies showing steady revenue and profit increases, good returns on invested capital, acceptable debt amounts, and the skill to turn accounting profits into actual cash flow. By using these strict filters, investors can find businesses with lasting competitive edges and long-term growth possibilities.

Financial Performance and Growth Numbers

PayPal displays various features that quality investors look for in possible long-term holdings. The company's past results indicate solid basic growth in important numbers:

• Revenue increase (5Y CAGR): 5.57%
• EBIT increase (5Y CAGR): 15.61%
• Return on Invested Capital (leaving out cash, goodwill, and intangibles): 35.74%

The notable outperformance of EBIT increase compared to revenue increase points to better operational effectiveness and possible pricing strength. This number is especially significant in quality investing as it implies the company is reaching economies of scale or has competitive edges that let it change revenue growth into even quicker profit growth.

Profitability and Cash Flow Strength

PayPal's profitability numbers show a company with solid operational features and high cash conversion. The company's profit quality score of 143.67% over the last five years is much higher than the screen's 75% minimum, indicating a better ability to turn accounting profits into free cash flow. This outstanding cash creation gives financial room for strategic investments, debt paydown, or giving capital back to shareholders.

The company's debt handling seems careful, with a debt-to-free-cash-flow number of 2.13, far under the screen's highest limit of 5. This suggests PayPal could in theory pay back all its debt in a little more than two years using current free cash flow, giving a good safety buffer for investors worried about financial steadiness.

Fundamental Analysis Summary

According to the detailed fundamental analysis, PayPal gets an overall score of 5 out of 10, with specific strong points in profitability where it gets 7 out of 10. The analysis points out several good qualities:

• Good return numbers including ROE of 23.16% and ROIC of 13.86%
• Healthy profit margin of 14.49% and operating margin of 19.08%
• Firm liquidity position with current and quick ratios of 1.33
• Fair valuation with P/E number of 14.79 compared to industry averages

The report mentions some worries about falling gross margins and slowing revenue growth, but overall describes a company with solid basic features that match with quality investing ideas.

Competitive Situation and Industry Patterns

Beyond the measurable numbers, PayPal works in the digital payments field, which gains from several long-term structural patterns including the move away from cash, e-commerce expansion, and digital wallet use. The company's global size, with 434 million active accounts in about 200 markets, gives network benefits that build competitive edges.

PayPal's varied brand collection, including Venmo, Braintree, and Xoom, places the company in many payment areas from peer-to-peer transfers to merchant services. This variety helps lower dependence on any single product line and gives several growth paths.

Investment Points

While PayPal fits many quality investing standards, possible investors should think about several elements. The company deals with strong competition from traditional financial firms, big technology companies, and new fintech businesses. Regulatory examination in the payments field keeps increasing globally, which might affect future activities.

The company's valuation seems fair compared to past levels and industry friends, trading at a forward P/E of 12.78. For quality investors, paying a reasonable price for very good businesses is better than buying average companies at low prices, making PayPal's current valuation possibly interesting for long-term owners.

For investors wanting to find other companies that meet the Caviar Cruise quality investing standards, more screening outcomes are accessible through this link.

Disclaimer: This analysis is for information only and does not make up investment advice, a suggestion, or a support of any security. Investors should do their own research and talk with financial advisors before making investment choices. Past results do not ensure future outcomes.