Shares in FinTech company PayPal (PYPL: US) took a big hit recently after the company posted its fourth-quarter 2021 results. Guidance fell short of Wall Street’s expectations, and as a result, the stock fell more than 20%.
While many analysts are now less bullish on PYPL than they were previously, one group of investors that clearly sees value in the stock after the recent pullback is PayPal insiders. Since the post-earnings share price fall, insiders have spent more than $2 million on PYPL stock.
Is this a sign that the stock has rebound potential? Let’s take a look.
Why Was PayPal Stock Crushed?
Before we discuss the insider buying here, it’s worth drilling into the Q4 results to find out what caused the sell-off. Is the growth story here over? Or is the company just facing short-term challenges?
Looking at the Q4 results, it’s not hard to see why investors dumped the stock. For a start, guidance for 2021 was well below expectations. By 2022, analysts had been expecting revenue growth of 18%. However, PayPal advised that it now expects growth of 15-17%.
Secondly, the company said that eBay’s migration to manage payments is hitting revenues. This migration put $1.4 billion of pressure on the company’s top line in Q4 and is likely to put another $600 million of pressure on the top line in H1 2022.
Third, PayPal said that supply chain issues are impacting cross-border payments, particularly out of China.
Finally, management announced a change in strategy. No longer is PayPal aiming to achieve 750 million users by 2025. Instead, the goal now is to boost user engagement.
Overall, there were a lot of negatives for investors to process.
The Growth Story Appears To Be Intact
Having said that, there were positives in the Q4 results.
For example, for 2021, total payment volume (TPV) was up 33% to $1.25 trillion.
Meanwhile, the group added 48.9 million net new active accounts (NNAs) during the year, taking its total NNAs at the end of 2021 to 426 million.
Additionally, the company said that its ‘super app’ was showing very promising results.
“2021 was one of the strongest years in PayPal’s history. We reached $1.25 trillion in TPV and launched more products and experiences than ever before. The future is moving in our direction, and we are investing in our consumer and merchant capabilities to seize the opportunity in front of us,” commented CEO Dan Schulman.
This suggests the growth story here is still intact.
Insider Buying at PayPal
Turning to the insider transactions, our data shows that three insiders have bought PYPL stock since February 3.
Those who have bought stock include:
- CEO Dan Schulman, who bought 7,994 shares at a price of $124.57 per share on February 3 (amount spent: $995,842)
- Independent Director Frank Yeary, who bought 4,000 shares at a price of $124.85 per share on February 4 (amount spent: $499,400)
- Director David Dorman, who bought 8,400 shares at a price of $119.33 per share on February 8 (amount spent $1,002,372)
Combined, these insiders have spent around $2.5 million on stock, which is a considerable amount of money.
Bullish Cluster Buying Pattern
There are several things that stand out about this insider transaction activity.
The first is that we have a clear ‘cluster buying’ pattern. Cluster buying is where three or more insiders have bought stock within a short period of time. This is one of the most bullish patterns in insider transaction analysis as it indicates that there’s a consensus of opinion within the company that the stock is set to move higher.
Secondly, the CEO has made a large purchase. This is very encouraging, as CEOs tend to be way ahead of analysts and portfolio managers when it comes to the performance of their companies. It’s worth noting that Schulman’s purchase was his first open-market purchase since he was appointed CEO in 2014.
Third, the two directors, Frank Yeary and David Dorman, both have significant capital markets experience. Mr. Yeary – who has served on the board since July 2015 – is currently a Manager at Darwin Capital Advisors LLC, a private investment firm. Previously, he was Managing Director, Global Head of M&A Citigroup Investment Banking.
Meanwhile, Mr. Dorman – who has also served on the board since 2015 – is the Founding Partner of Centerview Capital Technology Fund, a private investment firm. Previously, he was Senior Advisor and Managing Director to Warburg Pincus LLC, a global private equity firm. Given their backgrounds, it’s fair to assume that the directors know what they are doing here.
Overall, we see this insider buying pattern as very bullish.
Are Short Sellers Targeting PayPal?
However, before we form a view on PayPal stock, it’s worth checking the short interest data. Are short-sellers targeting the stock right now? If they are, it could indicate that there’s more downside on the horizon.
Looking at the latest short-selling data, it’s encouraging to see that the number of shares on loan is very low. At present, just 8.4 million PYPL shares are on loan, representing 0.71% of the free float. This indicates that hedge fund sentiment towards the stock is not overly bearish right now.
Meanwhile, the number of shares on loan has actually fallen by about 21% since the day the Q4 results were posted. This indicates that some of those who were positioned for share price weakness has taken their profits already.
PayPal Stock: Where to From Here?
Putting this all together, we think PayPal could have rebound potential. The company is still growing at a healthy rate, and buying from insiders signals that those within the company are confident about the future and expect the stock to rise.
Of course, after changing its strategy, management now needs to deliver. If future results are disappointing, the stock could continue to underperform. We are cautiously optimistic on this front, however. After all, would insiders have spent millions on stock if they thought it was going lower?