PayPal Holdings Inc (PYPL)

Conclusion

PayPal Holdings Inc runs a digital payments platform that connects merchants and consumers worldwide, through brands including PayPal, Venmo, Braintree and Honey. At a price of 60.05 USD on 2026-11-09, the company has a market capitalisation of 49.88 billion USD.

The verdict is undervalued. The price-to-earnings ratio is 10.6 against a ten-year median of 37.1, and enterprise value to EBITDA is 7.1 against a median of 26.2. The discounted cash flow gives 104.18 USD per share at a discount rate of 11.45%. The fair value band runs from 126.15 to 189.22 USD, with a midpoint of 157.68 USD and a margin of safety of 162.6%. The reverse DCF implies revenue growth of -0.4% a year, while revenue has compounded at 9.1% over five years and free cash flow per share at 5.0%.

The strongest numbers are the return on invested capital of 23.9% against a WACC of 9.9%, and free cash flow conversion of 133.3% on a trailing twelve-month basis. The share count has fallen by 4.0% a year over five years. The weakest are the gross margin of 44.5% against a ten-year median of 54.5%, the Altman Z-score of 1.96, which sits in the grey zone, and the quick ratio of 0.42.

Financial health

Financial health is grey, because as a financial business its debt is part of its trade. The current ratio of 1.26, net debt to EBITDA of 0.43 and interest coverage of 13.4 are all assessed as sound, and the quick ratio stands at 0.42 and debt to equity at 0.69 as of 2026-09-30. The Altman Z-score is 1.96, in the grey zone, but the Altman model was designed for manufacturers and PayPal is not one. Insolvency risk is not assessed here, because the Ohlson model does not apply to a financial business.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 133.3% on a trailing basis and 131.3% over five years, a Piotroski score of 8 out of 9 and a Beneish M-score of -2.49, which is read as unlikely to signal manipulation. The accrual ratio is -0.0146 and free cash flow after stock-based compensation is 5.32 billion USD. Stock-based compensation is 2.85% of revenue, and the share count has fallen by 4.0% a year over five years. The company beat estimates in seven of the last eight quarters, with an average surprise of 7.3%. Current-year estimates were revised up by 3.6% over 90 days, with four upward and five downward revisions in the last 30 days.

Profitability

Profitability is green. The return on invested capital is 23.9% against a WACC of 9.9%, a return on invested capital minus WACC of 14.0%, and the five-year median return on invested capital is 24.4%. The operating margin of 18.3% sits above its ten-year median of 15.8%, while the net margin of 13.8% matches its median. The gross margin of 44.5% is well below its median of 54.5%. Return on equity is 24.3%. The DuPont split shows a net margin of 15.8%, an asset turnover of 0.41 and an equity multiplier of 3.96 on 2025 figures, so a large part of the return comes from leverage.

Growth

Growth is green. Revenue compounded at 6.4% over three years, 9.1% over five and 13.6% over ten, and revenue grew in all 10 of the last 10 years. Earnings per share grew at 37.3% over three years, 8.8% over five and 18.4% over ten. Free cash flow per share grew at 9.2% over three years, 5.0% over five and 14.5% over ten. Analysts expect earnings per share to grow by 5.8% next year, a neutral signal, and the three-year figures lean on a recent rebound from a lower base.

Valuation

Valuation is green, because the verdict is undervalued. The price-to-earnings ratio of 10.6 is 71.6% below its ten-year median of 37.1, and the price-to-free-cash-flow ratio of 7.9 sits 63.6% below its median of 21.7. The discounted cash flow gives 104.18 USD per share at a discount rate of 11.45%, with about 47.3% of its value in the terminal value. The fair value band of 126.15 to 189.22 USD is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, not a price target. The fair value from historical multiples is 211.18 USD. The dividend yield is 1.0% and the payout on free cash flow is 7.9%.

Risks

The main weaknesses are the gross margin of 44.5% against its median of 54.5%, which leaves less room if pricing pressure continues, and the Altman Z-score of 1.96 in the grey zone. The quick ratio of 0.42 means liquidity relies on sources beyond cash and receivables. A fall in the 5.32 billion USD of free cash flow after stock-based compensation would weaken the discounted cash flow and the fair value band. Reverse DCF implied growth of -0.4% is far below the 9.1% five-year revenue growth, so the current price already assumes little growth. The analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and business-line exposure cannot be judged.