“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, June 04, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade – Paypal Holdings Inc (NASDAQ:PYPL) Calls

Monday, June 04, 2018

** OPTION TRADE: Buy the PYPL AUG 17 2018 85.000 CALL at approximately $3.45 to $3.55. Place a pre-determined sell at $6.90.

Also include a protective stop loss of $1.40.

Paypal Holdings Inc (NASDAQ: PYPL), a technology platform company, which enables digital and mobile payments on behalf of consumers and merchants around the world, continues to hold up better under broader stock market such as worries over Italy leaving the Eurozone or tariff restrictions – and is not far away from another leg higher.

PYPL stock began to find upside momentum and broke higher in the spring of 2017, it embarked on a steep rally that lasted into late January 2018. The stock then lost its upside momentum along with the broader stock market and thus largely trotted sideways since but looks to be a healthy consolidation phase.

In late April, the stock bounced off its 50-week simple moving average and managed to marginally break out of a bull flag pattern that ultimately looks to promise plenty further upside for the stock.

Influencing Factors

Paypal has been hitting the headlines recently for all the right reasons. The merchant giant has announced a series of partnerships with "leading payment networks, financial institutions and technology companies," which are part of Paypal’s strategy "to drive greater choice and flexibility in how and where our customers can pay."

PayPal recently announced it was acquiring iZettle for $2.2 billion, which will place it "squarely" into competition with Square.

iZettle, a Swedish company with its own credit card reader aimed at the small business market, or to put this into perspective, the company has been called "the Square of Europe." iZettle operates in brick-and-mortar stores in Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain, Sweden, and the United Kingdom.

The company began its journey providing credit and debit card readers that could be plugged into any smartphone or tablet. iZettle now provides a growing list of complementary services to its 500,000 merchants, including "lightning-fast mobile card readers, intuitive point-of-sale systems, invoicing software, business funding, and a site full of smart analytics so you can evaluate your output and keep getting better," according to the company's website.

The acquisition ups the competitive ante for Square in international markets. The U.K. has been of particular interest to Square, and early last year, the company set up shop there to gain a foothold on the European continent. This followed earlier expansions into Canada, Japan, and Australia. PayPal believes its "global scale and mobile and online payments leadership" are a strategic fit with iZettle's "in-store expertise, recognized brand, and digital marketing strength," giving PayPal an easy entry into a market that Square is counting on for future growth.

Hot on the heels of this acquisition, Paypal also extended its Google Pay partnership in a bid to "deliver more seamless payment experiences across the Google ecosystem."

Other recent developments include the roll out of the popular social mobile payments app Vemno and acquisition of Jetlore, "an AI-powered prediction platform for top retailers to provide more personalized commerce experiences."

Recent studies have shown that cash remains the main method of payment among consumers in Asia. However, PayPal thinks it has figured out how to get people to adopt digital payments. PayPal’s chief technology officer Sri Shivananda pointed out that security, privacy, and reliability are the three main barriers to consumer adoption of digital payments. Digital payment companies are hoping to convince people to shift from cash to digital payments by investing in secure, private, and reliable transactions.

PayPal processed $132 billion worth of payment volume in the first quarter, which represents a growth of 32% year-over-year.

Also, In addition to digital payment processing, PayPal has ventured into loans and investment services as it aims to be a comprehensive financial services provider.

Analysts and Hedge Funds Opinions

Top performing Credit Suisse analyst Paul Condra reiterated his Buy rating with a $93 price target. Condra said he "found PayPal's tone to be very positive, with several new initiatives, including a deeper relationship with Google, progress on Venmo monetization and the new cash card."

Similarly, Wedbush analyst Moshe Katri has just maintained a Buy rating and $90 price target on PayPal. This follows an 'upbeat' investor day, in which management had "discussed monetization strategies for merchants and consumer facing segments, updated medium-term guidance and provided data on non-eBay (EBAY)-related partnerships." Katri said he sees a "host of growth and scale catalysts, including explosive transaction growth in the mobile payments space and the ability to monetize its P2P engine Venmo." He adds that "over time, given its recent agreements with Visa and MasterCard, PayPal will be able to scale and expand margins."

PayPal has been assigned a $93.00 price target by analysts at Craig Hallum in a research note issued on Friday, May 18th. The firm currently has a “buy” rating on the credit services provider’s stock. Craig Hallum’s price target would suggest a potential upside of 11.71% from the stock’s previous close.

As well, BidaskClub upgraded shares of PayPal from a buy rating to a strong-buy rating in a research report published on Wednesday, May 23rd.

On the back of these recent drivers, the stock has received a bullish Strong Buy consensus from the street. Based on 16 analyst predictions, the stock has an optimistic average 12-month price projection of $88.14 (9% upside potential) with a high of $100 and a low of $43.

Harvey’s Options Volatility Indicator


Also, back on December 07 we executed a trade on PayPal which was very successful, and this trade looks to be promising as well.

PayPal has a twelve month low of $50.83 and a twelve month high of $86.32. The firm has a market cap of $96.89 billion, a PE ratio of 59.89, a price-to-earnings-growth ratio of 2.69 and a beta of 1.28.