Payment giant PayPal stock price attractive

PayPal Holdings (Nasdaq: PYPL) is a premier digital payment specialist with a promising future ahead. Other “fintech” (financial technology) companies may be nimbler and growing faster, but PayPal and its Venmo subsidiary remain formidable foes when it comes to competing for the youngest generations of consumers.

According to Piper Sandler’s 2022 “Taking Stock With Teens” report, Venmo and PayPal ranked Nos. 2 and 4, respectively, among young people’s favorite payments apps (Apple Pay was No. 1, and Cash App No. 3).

And PayPal’s “Pay in 4” was the favorite buy-now-pay-later service.

That’s all well and good, but the financials are what really matter.

PayPal is experiencing a serious slowdown from early pandemic growth levels, which has pushed down its stock price.

But free cash flow is still substantial, topping $1 billion in the last quarter, and PayPal has a massive user base that continues to use its services, generating income.

The company recently boasted 429 million active accounts, $1.25 trillion in payment volume in 2021, and 40,000 transactions per minute.

If PayPal can continue to manage steady expansion and increase profit margins as it scales up, the recent 75% drop from its all-time high last year will have been a great buying opportunity for long-term investors.

If you think shares of PayPal might be a good fit for your portfolio, dig into it deeper. (The Motley Fool has recommended and owns shares of PayPal.)

Ask the Fool

Q. What are “Fannie Mae” and “Freddie Mac”? – S.D., Wilkes-Barre, Pennsylvania

A. Those nicknames represent the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp., organizations created by Congress in 1938 and 1970, respectively. Both are designed to help ensure that the U.S. has a stable supply of affordable mortgages.

They provide funding to lenders and then buy many mortgages from lenders, with the proceeds from those sales allowing lenders to issue more mortgages. This keeps mortgages available for homebuyers.

The Federal Housing Finance Agency explains: “By packaging mortgages into [mortgage-backed securities] and guaranteeing the timely payment of principal and interest on the underlying mortgages, Fannie Mae and Freddie Mac attract to the secondary mortgage market investors who might not otherwise invest in mortgages, thereby expanding the pool of funds available for housing. That makes the secondary mortgage market more liquid and helps lower the interest rates paid by homeowners and other mortgage borrowers.”

Q. How much of my income should I be saving and investing for retirement? – H.L., Lexington, Kentucky

A. An old rule of thumb has been to sock away 10% of your pretax income, but that doesn’t serve everyone equally well. For example, if you haven’t been saving as much as you should have for retirement, you might need to start saving 15%, or even 20% or more.

A financial planner can help you draft a solid retirement plan. (Find a fee-only one near you at NAPFA.org.) Online calculators such as those at Calculator.net and Fool.com/calculators can provide some guidance, too.

It’s also smart to learn what you can expect from Social Security – do so by setting up a “My Social Security” account at SSA.gov.

My dumbest investment

My dumbest investment hurts. It was a friend. It was a private investment. He was letting us in on the ground floor. It was a sure thing. (It was fraud.)

We never had money to invest, but an uncle had just passed away and left us a small inheritance to invest toward our kids’ college. Of course, our “friend” knew this. We were the ones who got the education. – S., online

The Fool responds: Ouch. As you’re now well aware, it’s smart to be wary of any hot stock tip or investment opportunity offered by an acquaintance, or even one you read about online.

Your hard-earned money is on the line, as are the goals you’re saving and investing for, so do some additional digging.

Getting in on the ground floor of a promising young business can be exciting, but it’s not without risk. Lots of small businesses (including the many without ongoing fraud) never become big ones, and plenty end up failing altogether.

Even if a private investment succeeds, you may have trouble cashing out.

If you decide to invest, don’t put too many eggs in one basket. Perhaps cap each such investment at no more than, say, 3% to 5% of your overall portfolio.

And if you’re not sure whether to invest after researching, just don’t. You can park inheritance money and savings in a low-fee broad-market index fund and likely do well over the long run.