Is it too late to buy PayPal stock?

PayPal Holdings (PYPL 0.47%) he’s been a Wall Street loser for a long time. It has lost its way and much of its share value in recent years, but things may be looking up. Is there still a runway ahead or did you miss your chance to buy this stock once it was hot?

PayPal hasn’t lost its footing — yet

There are over 400 million people in the world who have a PayPal account. That’s more than the entire population of the US, plus Canada and several other countries. PayPal is a trusted platform that can be used for digital purchases and payments, and no one should think that PayPal is done.

He made the right move to bring in a new CEO when growth started to fade and it looked like the company needed an update. It still has the top brand and platform and is making the necessary changes to protect that.

Something that stood out to me in the latest earnings update is that active accounts have remained steady. PayPal had been losing accounts for some time. Management had explained that it was shedding less active accounts and focusing its resources on its more active customers. This resulted in losing the account but higher transaction rates. Maybe so, but it’s important to keep an eye on those numbers because a company can’t squeeze more transactions from the same customers forever. Looks like the commotion has stopped, at least for now.

There were many more positive updates. Revenue (currency neutral) rose 9% year-over-year, beating guidance of 7%. Total payment volume (TPV) increased 11%, adjusted operating margin increased 2.3 points to 18.5%, and adjusted earnings per share (EPS) increased 36% to 1 .19 USD.

There is still work to do

PayPal is a low-asset business. It is largely service-based, although it does offer hardware such as point-of-sale devices. It should have a high gross margin, but look what has happened to it in recent years.

PYPL Gross Profit Margin (Quarterly) data by YCharts

Aside from some hardware, which is not a large percentage of PayPal’s business or costs, the “products” it sells are business-to-business services. PayPal’s biggest growth driver over the past few years has been its white-label service under the name Braintree, or what it refers to as unbranded payment. This is a kind of wholesale business, which has generated lower profits for PayPal. Braintree’s higher revenue, but not as profitable, weighed on the bottom line.

Branded POS, which is under the PayPal name, grew just 5% year-over-year in the second quarter and accounted for 28% of POS, while unbranded purchases grew 28% year-on-year per year and represented 34%. It’s easy to see what’s going on here. CEO Alex Chriss noted that Braintree is “significantly contributing to dollar transaction margin growth for the first time in over 2 years.” Since joining, Chriss has talked about bringing “price to value” and has worked to correct the unbranded pricing structure to meet the value it creates for customers. As the leader here, PayPal has pricing power that it hasn’t fully applied. This is paying off.

At the same time, Chriss’ job is to reinvigorate growth in the brand house. That’s what he’s been working on feverishly since he took over. The company is strongly focused on creating a positive and simplified experience for PayPal users to drive growth.

It’s never too late to buy a great stock

I wasn’t the only one who welcomed the news about PayPal. PayPal stock has rallied since its second-quarter report was released on July 29. Since then, it has increased by 23%.

At this price and with the current trajectory, PayPal seems to be moving in the right direction. There is still work to do, but the path seems clearer now. Moreover, as PayPal becomes a tighter operation, it is less likely to let competitors slip through its cracks and open them. Other companies, which may face challenges of their own, are also returning to their core operations and may be less focused on gaining ground in PayPal’s territory.

Even though PayPal stock is on the rise, it’s still down 73% over the past three years. You may have missed out on the gains from before, but it’s going to go up quite a bit more and looks like a great value stock for long-term investors.