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tesla and Rolls-Royce are probably the most popular growth stocks in the UK right now. And that's understandable: both have potential.
However, right now I have my eye on another growth play. I think it has the potential to surpass both names in 2024.
A forgotten growth action
the action is PayPal (NASDAQ: PYPL). It is one of the largest payments companies in the world with hundreds of millions of customers in more than 200 countries.
Currently, PayPal has faced enormous challenges in recent years, the main one being intense competition from Apple Pay. So how is it possible for the stock to outperform Tesla and Rolls-Royce this year? Well, let me explain.
Price for zero growth
PayPal stock has been absolutely crushed over the past two years. As a result, it now trades on a rock-bottom price-to-earnings (P/E) ratio of just 12.
At that earnings multiple, you're essentially valuing yourself by zero growth.
However, this is not a zero-growth company. This year, revenue is expected to increase from $29.6 billion to $32 billion (+8%). Meanwhile, earnings per share are expected to rise to $5.49 from $4.95 (+11%).
If sentiment towards the stock improved, I could easily see the P/E ratio here rising to 18, give or take. That would mean a share price increase of around 50% from current levels.
Personally, I don't think Tesla or Rolls-Royce will be able to generate those kinds of profits in 2024. Both are already very expensive stocks. Tesla currently trades at 57 times this year's forecast earnings, while Rolls-Royce is at 24.
Focused on profits
Of course, there would have to be a catalyst for a valuation appreciation in this case. But I see one. And it's new president and CEO Alex Chriss and his strategy for reinventing the company.
In an interview with CNBC last week, Chriss, who previously worked at FinTech powerhouse To sense (and helped drive strong growth in the company's small business segment) – made it clear that things are about to change at PayPal.
It said it is focused on five key priorities, all focused on profitable growth. He also noted that the company will move away from unprofitable businesses.
Investors will learn more at the company's “Innovation Day” on January 25.
It's worth noting that since Chriss' interview, shares have already started to rise. In just a few days, he has jumped from $58 to $66. So investors are clearly taking notice.
I am buying
Now, PayPal may not surpass Tesla and Rolls-Royce in 2024. It may not even generate attractive returns. As I mentioned earlier, the company faces significant challenges right now.
But I am convinced that most of these challenges are priced into stocks. I also think that anyone who wanted to sell because of these challenges has probably already done so.
And with the current P/E ratio of 12, I think the risk/reward setup is attractive. So recently I've been expanding my property here. I think there is a lot of potential in 2024.
