Premium content from Motley Fool Share Advisor UK
Our monthly Fire Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of growth-focused Fire recommendations, to help Fools build out their portfolios.
“Best Buys Now” Pick #1:
PayPal (NASDAQ:PYPL)
- Its Q3 earnings showed revenues increasing by 6% at constant currency.
- While the growth rate decelerated from the previous quarter, the company is focusing on profitable, “durable” growth, rather than a higher proportion of low margin processing volumes.
- Its enterprise payments platform Braintree saw volume decline to 11% to 19%, but is “meaningfully contributing” to transaction margin dollar growth (an important profit measure) which grew 8% to $3.7bn.
- The company has cut costs in recent years as part of an efficiency drive, helping operating margins move higher (which were 18.8% in the quarter). But as the business scales, further drastic cost cutting shouldn’t be necessary to support margin growth.
- While the share has risen by 39% in the past 12 months, it’s currently trading at 17x trailing earnings, which still seems like a reasonable valuation for a growing, highly profitable business returning cash to its investors.
