Stripe Wants to Buy PayPal. How You Should Play PYPL Stock Right Now.

Privately held Stripe has decided to swing for the fences with its boldest play yet in digital payments. Reuters reported that the fintech heavyweight joined forces with private equity firm Advent International to submit an offer worth more than $53 billion to acquire PayPal Holdings (PYPL).

The proposal values PayPal at $60.50 per share, placing the offer roughly 28% above Tuesday, July 14's closing price. Stripe and Advent plan to jointly own PayPal under the proposal, with each taking an equal stake rather than carving up the business. People familiar with the matter also cautioned that nothing guarantees the discussions will lead to a completed deal.

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Reuters reported that banks have committed nearly $50 billion in financing to support the transaction. A successful acquisition would bring together two giants of digital payments under one roof, creating a business capable of processing nearly $3.7 trillion in annual payment volume.

The offer arrives at a pivotal moment for PayPal, which has struggled to maintain its competitive edge in an increasingly crowded digital payments market, a challenge reflected in its latest earnings report. The company also overhauled its leadership this year after replacing former CEO Alex Chriss, who had been brought in to revive its slowing business.

Investors wasted no time cheering the acquisition news, sending PayPal shares up 17.2% after the report emerged on Wednesday, July 15.

William Blair analyst Andrew Jeffrey believes the current proposal simply opens the door to a longer round of negotiations. He expects PayPal's new leadership to reject what could be viewed as a low initial bid and believes Stripe and Advent could ultimately raise their offer to as much as $70 per share.

With PYPL stock already staging a sharp rally, let us see whether it still offers meaningful upside.

Headquartered in San Jose, California, PayPal is a global digital payments platform that serves consumers and businesses through brands such as PayPal, Venmo, Braintree, Xoom, and Honey.

Once among Silicon Valley's biggest success stories, PayPal reached a market value of roughly $360 billion in 2021 during the pandemic-fueled digital payments boom.

Since then, slowing growth, rising competition from Apple's (AAPL) Apple Pay and Alphabet's (GOOGL) Google Pay, and the growing adoption of alternative payment methods have weighed on its business, reducing its market cap to approximately $49 billion.

The stock reflects that difficult journey. PayPal's shares have fallen 22.3% over the past 52 weeks and slipped 2.9% year-to-date (YTD). However, recent trading tells a different story. The shares have rallied 29.9% over the past month and gained 25.1% during the last five trading sessions, largely fueled by an intraday jump following news of Stripe's takeover proposal.

Even after the recent rally, PayPal still trades at an attractive valuation. The stock currently trades at 8.91 times forward adjusted price-to-earnings and 1.43 times sales. Both multiples remain below the broader industry averages as well as the company's own five-year historical averages, suggesting the valuation still leaves room for opportunity.

In addition, PayPal returns capital to shareholders through dividends. It pays an annual dividend of $0.56 per share, which translates to a dividend yield of 1.18%. Its most recent quarterly dividend of $0.14 per share was paid on June 25 to shareholders of record as of June 4.

Although PayPal delivered stronger-than-expected first-quarter results on Tuesday, May 5, investors still headed for the exits. The fintech reported revenue growth of 7.2% year-over-year (YOY) to $8.35 billion, ahead of analysts' estimate of $8.05 billion. Adjusted EPS also marginally increased from the prior year to $1.34, beating Wall Street's expectation of $1.27.