PayPal, one of the larger players in the payments space, has been doing well since it was spun off from online auction site eBay in mid-2015. As a payments company, PayPal supports online commerce, which can be an attractive investment if you think the world is moving more and more towards electronic payments and even more e-commerce. PayPal is also the company behind Venmo, which has gained a lot of attention in recent years for bank-to-bank transfers.PayPal has experienced a boom in business during the pandemic, with profits soaring more than 70% in 2020 as more people move shopping online. But the company now faces slowing growth and issued a disappointing 2022 earnings outlook, sending its shares down nearly 25% in a day. The stock has lost nearly 60% this year through May 2022.
If you’re considering buying a stake in PayPal stock, here’s what to do and what you need to know before you decide.
1. Analyze PayPal and its financials
Analyzing a company’s competitive position and financials can be the hardest part of buying stocks, but it’s also the most important. The best place to start is the company’s Form 10-K, which is the annual report that all public companies must file with the SEC.
The 10-K can help you learn a lot about the company:
- How does it make money and how much
- Its assets and liabilities
- Its profitability develops over time
- Competitive Landscape
- Various risks faced by the company
- Managing teams and how to motivate them
An annual report is a good first step to learning more about a company, but you want to do more than that. You should check what other companies are doing to compete as it is important to have a broader view of the industry.
For example, PayPal is one of the largest payment companies, but it competes with some very well-known companies. Visa and Mastercard have reached a strategic agreement with PayPal that will expand the reach of the retailer’s payment network and allow consumers to pay using the methods they prefer. Currently, Visa and Mastercard have agreed not to impose any fees or rules on PayPal, but this may change when the strategic agreement ends.
2. Does PayPal make sense in your portfolio?
PayPal is doing well and growing rapidly, with revenue growing around 20% in 2020 and 2021. If this growth can continue, the stock should do well. However, there are also some risks, such as B. due to the company’s strong competitors and lower growth prospects in 2022. And the nature of tech companies is often associated with the disruption of incumbents, so PayPal is doing well, but there’s no guarantee the future will be just as bright.
So you should ask yourself the following questions:
- Do you understand the business and its future prospects?
- Can you continue to analyze it as your business and industry evolves?
- Given how volatile the stock is, can you hold or even buy more if it goes down?
- Do you understand the value of the company and how it compares to the current market value?
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3. How much investment can you afford?
How much you can invest has less to do with PayPal and more to do with your personal financial situation. Stocks can be volatile. So to give your investment time to pay off, you should be able to keep your money in stocks for at least three to five years. This means you should be able to live without money for at least that long.
Commitment to holding the stock for three to five years is important. You hate having to sell a stock when it’s nearing a bottom, only to see it bounce higher after you exit your position. By sticking to a long-term plan, you can ride out the ups and downs of the stock.
If you invest in individual stocks, you should probably keep the percentage of individual positions between 3% and 5%. That way, you’re not seriously exposed to investments that wreck your portfolio. You can choose a lower percentage than this range if the stock has a higher business risk.
Also, don’t just invest a lump sum of money in stocks, but consider how you can add money to the position over time.
4. Open a brokerage account
While opening a brokerage account may sound difficult, it is actually quite simple and you can have it all set up in about 15 minutes.
You should choose a broker that suits your needs. Do you trade often or rarely? Do you need a high level of service or research? Is cost the most important factor for you? If you buy a small amount of stocks but invest primarily in funds, some brokers offer commission-free trading exclusively for those funds.
After opening an account, you should have sufficient funds to purchase PayPal stock. But you can do this completely online, and it’s easy.
With PayPal stock trading around $80 a share as of May 2022, you probably won’t have enough cash to buy an entire share. Several brokers, including Charles Schwab and Fidelity, have started offering fractional shares to help with this, allowing you to invest for just a few dollars.
5. Buy PayPal stock
Once you decide to buy PayPal stock and open and fund your brokerage account, you can set up your order. Use the company’s ticker symbol – PYPL when entering your order.
Most brokers have a “trade ticket” at the bottom of every page so you can enter your order. On the broker’s order, you enter the ticker and the number of shares you can afford, or if you buy fractional shares, the amount you want to invest. Then enter the order type: market or limit. A market order buys a stock regardless of the current price, while a limit order is only executed when the stock reaches the price you set.
If you’re only buying a few stocks, it’s best to stick to market orders. Even if you pay more for a market order now, if the stock continues to perform well, it won’t have much of an impact on long-term performance.
Buying stocks can be exciting, but success doesn’t happen overnight. Investors should take a long-term view of their investments, and if they believe in the stock for the long-term, they should consider using dollar average cost.
With dollar average cost, investors add a certain amount of money to their positions over time, which really helps when the stock falls and allows them to buy more. High-flying stocks can fall from time to time, so this strategy can help you get lower purchase prices and higher overall profits.
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