Earnings season can give a snapshot into how a company is doing. It can also give a view into how traders view a company’s prospects based on one-time events that may not have a massive bearing over the long haul.
Case in point? PayPal (PYPL). The company reported earnings after the market close Monday, and the headline numbers were pretty solid. Shares dropped anyway.
Shares of the payment giant are now slightly down for the year, having slid nearly 20 percent in the past three months alone. That’s in spite of a 13 percent rise in revenue and the company’s big growth in its Venmo division.
- This Company’s Share Price has Increased 1650% Since 2016.
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The recent fear in shares comes from a declining percentage of revenue related to former parent company eBay (EBAY). The online auction site is developing its own payment system, and the company it once bought and then spun off is seeking other ways to profit.
Action to take: Given the company’s fundamentals, and its ease of onboarding users to cryptocurrencies, shares look oversold even going into this latest earnings report. The recent drop has sent the company from 64 times forward earnings to 38 times forward earnings. Shareholders won’t get a dividend for some time, but the company still has room to grow.
For traders, a call option makes sense as a rebound play. The March $250 calls, last going for about $10.00, stand a good chance of moving higher in the months ahead as the stock shakes off this latest reaction to earnings.
Disclosure: The author of this article has a position in the company mentioned here, and intends to further trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.