If you have been watching PayPal Holdings lately and wondering whether now is the time to buy, hold, or take your gains, you are definitely not alone. After all, its story has felt like a rollercoaster, and the numbers only reinforce the feeling. In just the last seven days, shares have edged up 2.0%, but over the last year they are down over 11%. Stretch that horizon to five years, and PayPal has tumbled 63.6%, leaving some long-term holders shaking their heads and others eyeing a potential turnaround.

What is driving all this volatility? Recent headlines put PayPal at the center of some major finance world developments. The company has been part of a massive $1.69 billion investment push into the U.K., which signals confidence from the financial sector in its international growth. At the same time, European regulatory pressures have caused hiccups, like German banks suspending certain PayPal payment methods as they work through security challenges. These moves add both excitement and risk, feeding into shifting investor sentiment and, naturally, price swings.

Yet, when you strip away today’s news cycle and look at the numbers that matter most, things get even more interesting. PayPal currently scores a perfect 6 out of 6 on traditional value checks, a clear sign that the company is undervalued across every metric we measure. In the next section, I will break down the most common valuation methods used by professionals and explain where PayPal stacks up. And, stay with me, because after reviewing these classic methods, I will reveal a more powerful way to understand what PayPal is really worth.

Why PayPal Holdings is lagging behind its peers

The Excess Returns valuation approach measures how much value a company creates above and beyond its cost of equity. It focuses on whether a firm is generating returns on its investments that consistently beat what shareholders demand. For PayPal Holdings, this method reveals several key figures that speak to its financial health and growth prospects.

According to weighted analyst estimates, PayPal has a book value of $21.04 per share and a stable earnings per share (EPS) of $6.33, anchored by an impressive average return on equity (ROE) of 24.64 percent. The stable book value, projected at $25.70 per share by eight analysts, highlights the company’s solid foundation and potential for steady asset growth over time. With a cost of equity of $2.01 per share, PayPal’s excess return, or the earnings generated over and above this cost, comes in at $4.32 per share. This wide gap between generated returns and required returns signals robust value creation for shareholders.

Based on this analysis, the intrinsic value for PayPal stock is $116.54, which is about 41.5 percent above the current share price. This notable discount points to substantial undervaluation in the market today.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for PayPal Holdings.

Our Excess Returns analysis suggests PayPal Holdings is undervalued by 41.5%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

The price-to-earnings (PE) ratio is a widely used valuation tool for profitable companies, especially those like PayPal that generate consistent earnings and have predictable cash flow. The PE ratio helps investors quickly compare how much they are paying for each dollar of a company's earnings, offering a straightforward lens for judging relative value in the market.

A "normal" or "fair" PE ratio for a company can vary depending on factors such as growth expectations and risk. Higher expected growth typically justifies a higher PE, while increased risks or slowing growth can lower that number. Benchmarks like industry or peer averages provide some context, but companies with unique growth prospects or risk profiles may often trade above or below those lines.

PayPal currently trades at a PE of 13.9x. This is below both the Diversified Financial industry average of 16.8x and the peer average of 17.9x, suggesting a discount relative to both benchmarks. However, the Simply Wall St "Fair Ratio" for PayPal is 18.4x. Unlike traditional averages, the Fair Ratio blends industry factors, future earnings growth, profit margin, company size, and risk to deliver a more tailored fair value multiple. This approach considers all the critical elements that can influence what a company "deserves" to trade at. Given PayPal’s current PE of 13.9x is comfortably below its Fair Ratio, the stock appears attractively undervalued based on this metric.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is a simple, story-driven approach that helps investors connect the “why” behind their view of a company with the “what” of its financial forecasts and fair value estimates. Rather than relying on a single number, Narratives invite you to explain your outlook by detailing your assumptions on everything from PayPal Holdings’ future revenue and profit margins to its risks and industry tailwinds, all while providing your own fair value estimate.

By linking your perspective to a dynamic forecast and fair value, Narratives allow you to see how changes in the business, such as new features, partnerships, or external shocks, may impact your investment thesis in real time. Narratives are easy to create and share with millions of other investors on Simply Wall St’s Community page, making them an accessible tool for both beginners and pros.

This framework is especially powerful for decision making. Comparing your Narrative’s fair value to today’s price helps clarify whether it’s time to buy, sell, or sit tight. Narratives update as soon as new information (earnings reports, news, or guidance changes) comes in, so your investment decisions are always in sync with the latest facts. For example, one PayPal Narrative forecasts a fair value as high as $190 based on rapid global expansion and robust profitability, while the lowest current Narrative values the stock at just $75, reflecting concerns over fierce competition and profit margin pressure.

Do you think there's more to the story for PayPal Holdings? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include PYPL.

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