PayPal was one of the biggest beneficiaries during the pandemic. Lockdowns forced people to shop from home, e-commerce picked up sharply and took PayPal’s user numbers, revenue and profits up with it. As a result, the stock surged from its March 2020 low of $82 to as high as $310 by July, 2021. Alas, as Netflix, Peloton, Zoom and others are now finding out, the human species is not meant to be locked up.
PayPal is also suffering through a slowdown in its business. The company’s last two quarterly reports came out below analysts’ estimates. The stock revisited its pandemic low of $82 on Wednesday and is now down 52.8% YTD and 70.3% from its record. If history is any guide, recouping those losses, if ever possible, would take many years. We don’t know what investors paying $300+ a share for under $4 in EPS were thinking. PayPal is a great example of the fact that even a great business can be a bad investment if you pay too high a price for it.
The Elliott Wave Structure of PayPal ‘s Crash Points North
However, PayPal is, indeed, a great business. It is profitable, growing and debt-light. So, new investors might have a much better chance of achieving decent returns buying the stock below $100. While from a valuation standpoint it is still not exactly cheap, PYPL’s Elliott Wave chart below suggests a notable recovery can be expected. Let’s take a look.
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PayPal ‘s daily chart shows that its 73.5% crash from $310 to $82 took the shape of a five-wave impulse. The pattern is labeled 1-2-3-4-5, where the five sub-waves of wave 3 are also visible. One can as well notice the impulsive structure of waves (iii) and (v) of 3. What matter more, though, is the message this pattern is sending.
According to the theory, a three-wave recovery follows every impulse. A complete impulse in PayPal means we can expect a rally to at least the resistance of wave 4 near $120. That would be a 30% gain from yesterday’s close. In addition, there is a bullish RSI divergence between waves 3 and 5 supporting the positive outlook. If this analysis is correct, the next few months may provide a relief to beaten and bruised PayPal shareholders.
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