Should You Buy PayPal Stock at About 10 Times Its Expected 2026 Earnings?

Investors obviously prefer buying stocks at a discounted price. However, not all discounted stocks are necessarily worth owning at any valuation.

That's the conundrum anyone eyeing digital payment facilitator PayPal (NASDAQ: PYPL) is facing right now. Shares are priced dirt cheap at only 10.3 times this year's expected earnings of $5.55 apiece. But the fact that the stock's drifted to such a valuation suggests most investors aren't hopeful about its future.

Maybe you should be willing to take a speculative shot on it anyway, though -- or maybe not.

Glimmer of hope?

The stock's poor performance since 2021 isn't surprising. The digital payment market's gotten very crowded, bringing PayPal's growth to a near halt. Its third-quarter revenue improved only 2% year over year, driven by a modest 6% uptick in payment volume and total transactions. Total active accounts barely budged from the second quarter's 440 million, which is only a tad above the number it ended 2022 with. Profits have been dwindling all year, unwinding what looked like the early stages of a turnaround in 2024 and 2025. Investors are understandably discouraged.

The company's (relatively) new CEO, Enrique Lores, has a plan that includes integrating its payment tech with artificial intelligence platforms and a more diversified lineup of financial services, such as buy-now-pay-later and data security.

It won't be a quick fix, however. As Lores commented during Tuesday's third-quarter conference call, "This is a multi-year transformation, and there is much more work to do," although he added that "the progress we are seeing reinforces our conviction in the strategy."

There's at least some progress in the cards already. Profit guidance for the fourth quarter currently underway is $1.43 per share, up from the year-ago comparison of $1.23. That figure should cap off full-year earnings of $5.60 per share, up from mid-year guidance of $5.38 versus 2025's bottom line of $5.31 per share. Anyone buying into PYPL stock at this time is betting that that's the beginning of something more prolonged, although most investors clearly aren't making that bet. Should you?

Not for everyone, but...

There's obviously potential here. However, there's also significant risk.

While Lores appears to have a handle on what's wrong and how to fix it -- and PayPal is a well-respected brand name with hundreds of millions of users -- there's an incredible amount of competition on all of PayPal's fronts, ranging from Apple's and Google's digital wallets to Block's Cash App to Stripe. This will make it difficult for any turnaround effort by PayPal to gain real traction.

Image source: Getty Images.

There's one bullish argument that just might make the risk worth it. That's the prospect of an acquisition. Although the company rejected the buyout offer jointly made by Stripe and private equity firm Advent in the middle of this year, that bid confirms PayPal has value at its current price. It's just a matter of unlocking it. To this end, there's renewed chatter that another prospective suitor is now interested, after David Einhorn's hedge fund, Greenlight Capital, recently scooped up this cheap stock.

This institutional interest alone isn't a reason to dive in, but it certainly bolsters the value-minded bullish argument for speculative investors who can stomach the risk.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, Block, and PayPal. The Motley Fool recommends the following options: short December 2026 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.