Companies Improving Their Profitability Now Can Win Big in the Next Bull Market

This earnings season has been a mixed bag. Companies are reporting big layoffs and warning on an economic slowdown and the impact of inflation. Yet what sounds like bad news now could be bullish later on.

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  • That’s because companies laying off staff are finding that they can do as much – if not more – with a reduced headcount. Lower staffing costs could lead to a further cost savings that increases profitability – which could be a boon for shareholders.

    Of the many companies laying off and warning on inflation now is PayPal (PYPL). The company warned on inflation and has laid off staff. But they’ve beaten on earnings for the fourth-quarter by being early to adjust to the current economic reality.

    Even with shares slightly up on the earnings beat, shares are down a third over the past year. Shares of the payment processing company trade at 17 times forward earnings, and both revenue and earnings growth are up double-digits over the last year.

    Action to take: Investors may like shares at or under current prices, given the company’s leading position in the online payments space should continue to remain strong. At the moment, shares do not pay a dividend.

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  • For traders, the April $85 calls, last going for about $4.10, offer mid-double-digit returns on a continued move higher in shares in the coming weeks.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.