PayPal hits oversold level not seen since 2016

Online payment processor and portal PayPal (Nasdaq: PYPL) peaked at $121.48 back in July and has now fallen for four straight weeks. The selling that has hit the stock coincides with weakness in the overall market, but it has caused an overbought/oversold indicator to reach its lowest level since June 2016. The weekly stochastic readings, specifically the %K reading, have dropped below the 20 level for the first time in over three years.

Even during the fourth quarter selloff in the overall market, PayPal held up better than most stocks, and then when the market rallied in the first quarter the stock moved up over 25% from the December low through the end of March. It continued to climb in the second quarter and half way through July.

PayPal did drop below its 52-week moving average during the fourth quarter, but the oscillators never reached oversold territory. The longer-term moving average of 1o4 weeks never came in to play.

Looking at a shorter term indicator, the Tickeron Technical Analysis Overview noted that “the lower Bollinger Band was broken -- a price increase is expected as the ticker heads toward the middle band, which indicates a buy or call consideration for traders. In 20 of 26 cases where PYPL's price broke its lower Bollinger Band, its price rose further in the following month. The odds of a continued Uptrend are 77%.”

The fundamentals for PayPal are really strong. The company has been able to grow earnings at an average annual rate of 28% over the last three years. The most recent quarterly report showed earnings growth of 48% on a year over year basis. Analysts expect earnings to grow by 30% for 2019 as a whole.

Sales have also grown at a solid pace, growing by 19% per year over the last three years and growing by 12% in the most recent quarter.

The management efficiency measurements are slightly above average with a return on equity of 18.6% and a profit margin of 23%. It is also worth noting that the company doesn’t have any long-term debt.

One of the biggest concerns for PayPal at this time is its valuation. The Tickeron Valuation Rating is a 72 and indicates that the company is slightly overvalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks.

The sentiment toward PayPal is slightly more optimistic than the average stock. According to the Wall Street Journal, there are 39 analysts following the company. There are 30 “buy” ratings, eight “hold” ratings, and one “sell” rating. This puts the buy percentage at 76.9% and that is slightly above the high end of the normal range of 65% to 75%. One interesting note about the analysts’ ratings is that there were 44 analysts following the company just two months ago.

The short interest ratio is also slightly skewed to the optimistic side with a reading of 2.0 at this time. There is also an interesting development on this indicator. The number of shares sold short dropped from 15.5 million shares to 12.4 million shares from mid-July through the end of July. This drop in short interest happened as the stock was falling, so it would appear as though short sellers were taking gains.

The overall outlook for PayPal is pretty strong based on the fundamentals and the oversold reading from the weekly stochastics. The sentiment is a little worrisome, but given the way the company has performed in recent years, the optimism seems to be warranted.

Notable companies

Industry description

Market Cap

High and low price notable news

Volume