Last update on 2024-06-07

PayPal Holdings (PYPL) - Piotroski F-Score Analysis for Year 2023 (Final Score: 8/9)

Detailed Piotroski F-Score analysis for PayPal Holdings (PYPL) in 2023. Discover the financial health insights with an impressive score of 8/9.

Short Analysis - Piotroski Score: 8

We're running PayPal Holdings (PYPL) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is an indicator ranging from 0 to 9 that assesses a company's financial health, with higher scores indicating stronger positions. For PayPal Holdings (PYPL), the analysis across 9 criteria yielded a high score of 8. This implies that PYPL is a financially robust company with solid profitability, positive cash flow, improving return on assets, favorable liquidity, declining leverage, and efficient asset utilization. Notably, their net income, operating cash flow, and asset turnover metrics have improved, although gross margin has slightly decreased.

Insights for Value Investors Seeking Stable Income

Based on the Piotroski F-Score of 8, it seems that PayPal Holdings (PYPL) is a strong and potentially undervalued stock. The company demonstrates strong profitability, good cash flow management, and decreasing reliance on debt. While their gross margin needs improvement, the overall financial metrics suggest that PYPL could be a solid investment opportunity. It is worth considering for further research and potential inclusion in an investment portfolio.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of PayPal Holdings (PYPL)

Company has a positive net income?

Evaluating whether PayPal Holdings' (PYPL) net income is positive is crucial as it indicates profitability.

For the fiscal year 2023, PayPal Holdings (PYPL) reported a net income of $4.246 billion. This positive figure continues a decade-long trend, excluding a minor dip in 2014. Historically, PayPal has shown consistent growth in net income from $778 million in 2012 to its current peak. Given this trend of rising profitability, this criterion deserves 1 point according to the Piotroski analysis, signaling financial robustness.

Company has a positive cash flow?

The Cash Flow from Operations (CFO) measures the amount of cash generated by a company's regular business operations.

For PayPal Holdings (PYPL), the CFO in 2023 is $4,843,000,000, which is a considerable positive number. Over the past decade, the company has consistently generated positive cash flows, except for a slight decline in certain years such as 2017. This consistency in maintaining positive CFO indicates strong operational efficiency and the company's ability to generate sufficient cash to cover its obligations and investments. Given the 2023 metric being positive, PayPal earns 1 point according to the Piotroski criterion.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures how efficiently a company is able to generate profit from its assets. A higher ROA indicates more efficient management and utilization of assets.

Comparing the ROA for PayPal Holdings, Inc. (PYPL), there is a notable increase from 0.0313 in 2022 to 0.0528 in 2023, adding 1 point according to Piotroski criteria. This is a good trend for PayPal, as it reflects a more effective utilization of its assets to generate earnings. The rise signals improved operational efficiency within the company.

Operating Cashflow are higher than Netincome?

The criterion analyzes whether Operating Cash Flow (OCF) is higher than Net Income, measuring the company's cash-generating ability.

For 2023, PayPal's Operating Cash Flow (OCF) of $4,843,000,000 surpasses its Net Income of $4,246,000,000. This indicates strong cash generation relative to accounting earnings, a positive sign affirming accounting quality and liquidity. Comparatively, over the past years—except periods of extraordinary circumstances—OCF has generally trended above net income, demonstrating an operational efficiency in converting sales to cash.

Liquidity of PayPal Holdings (PYPL)

Leverage is declining?

Grade firms based on the leverage trends in the present year compared to last year, where diminishing leverage implies stronger financial health.

Analyzing PayPal Holdings (PYPL) on the facet of leverage over time, the leverage ratio for 2022 stood at 0.1325, whereas it experienced a slight decrease to 0.1178 in 2023. Such a 0.0147 drop marks an improvement suggesting that the company is becoming less reliant on debt, helping to underline a lower financial risk profile and improved financial health. When looking back at the historical leverage data spanning 2012 to 2023—with notable figures showing zero leverage initially, followed by gradual increments since 2019—it is exemplary of a company cautiously managing its debt load over time. This indicates a conscious effort towards maintaining a sound balance sheet, particularly remarkable given the economic turbulences in recent years. Hence, the decline in leverage from 2022 to 2023 earned PayPal Holdings a well-deserved point in the Piotroski Analysis.

Current Ratio is growing?

The current ratio measures a company's ability to pay short-term liabilities with short-term assets. A higher ratio indicates more liquidity and financial health.

In 2023, PayPal's current ratio has increased to 1.291 from 1.2759 in 2022. This growth suggests a slight improvement in liquidity. Visualizing the trend, PayPal's current ratio over the last 20 years shows periodic fluctuations, typically hovering around 1.3-1.5, with notable dips. When compared to the industry median for 2023, which stands at 1.4517, PayPal's ratio remains below industry norms. Adding a point for the increase this year reflects a positive movement but doesn't negate the slight liquidity pressure relative to the broader industry. Therefore, PayPal adds 1 point for this criterion due to the improvement in its current ratio year-over-year.

Number of shares not diluted?

The criterion examines changes in the number of outstanding shares. A decrease indicates shareholder value enhancement, often signaling buybacks.

In 2023, PayPal Holdings (PYPL) had 1,103,000,000 outstanding shares, down from 1,154,000,000 in 2022. This reflects a strategic reduction by 51,000,000 shares which suggests PayPal might have repurchased shares, enhancing value for existing shareholders. Historical trends corroborate a long-term strategy to reduce outstanding shares, as evident from consistent declines over the years. Given the reduced outstanding shares, 1 point is awarded.

Operating of PayPal Holdings (PYPL)

Cross Margin is growing?

This criterion evaluates whether a company’s gross margin has improved over the past year. It reflects the company's operational efficiency and pricing power.

Unfortunately, PayPal Holdings’ gross margin declined from 0.5005 in 2022 to 0.4603 in 2023. This evidence points to deteriorating efficiency in controlling production costs or a decline in pricing power. Comparing with the last 20 years of data: PayPal's gross margin has seen substantial fluctuations, with its apex in 2012 at 0.6674 and lowest in 2018 at 0.4604. Additionally, the industry median gross margin, albeit not provided for 2023, generally showcases a higher benchmark, signaling competitive pressure. Consequently, this criterion scores a 0 point for PayPal Holdings due to the unfavorable trend.

Asset Turnover Ratio is growing?

Change in Asset Turnover evaluates how efficiently a company is using its assets to generate revenue over time. An increasing trend indicates better management efficiency.

Evaluating the Asset Turnover ratio for PayPal Holdings (PYPL) reveals a modest increase from 0.3564 in 2022 to 0.3703 in 2023. This increment, though slight, is a positive indicator, reflecting a higher efficiency in utilizing assets to produce revenue. Adding the value '1' to the scorecard is justified here. Historically, PYPL had a peak turnover of 0.7022 in 2013, but the trend tapered in subsequent years, stabilizing around the mid-0.350s. The rise in 2023 halts the declining momentum seen in previous years.