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We live in an era of momentum investing. Value investing – especially deep value investing – is out of fashion. As a result, nobody is interested in PayPal (PYPL). But after Tuesday’s washout, the stock has simply gotten too cheap and will reward patient shareholders who can take a long term outlook.

PYPL closed Thursday at $39.90. They are guiding 2026 EPS to a low single digit decline to slightly positive from $5.31 in 2025. $5.25 seems like a conservative estimate. In other words, PYPL is trading for 7.6x earnings.

In addition, PYPL is aggressively buying back its shares. It spent $6 billion to buy back 86 million shares in 2025 and plans to spend another $6 billion in 2026 buying back shares. The essential point here is that if you do the math, PYPL paid ~$70/share in 2025. If the price stays around $40, it will be able to buyback 150 million shares for $6 billion in 2026. The diluted share count is currently 939 million. In other words, if the price stays where it is PYPL will retire 16% of its shares in the current year. That means the value of the business for each remaining shares increases significantly.

Last, while it might not be a great business, it’s still a decent one. Total Payment Volume (TPV) increased 8.5% to $475 billion in 4Q25. Revenue increased 3.7% to $8.7 billion. EPS increased to $1.23 from $1.19 – but that’s only because they bought back so many shares. Net income actually decreased 4.5% to $1,155 million from $1,209 million in 4Q24.

Let’s put it all together now and come up with an intrinsic value. PYPL’s Non-GAAP net income was $5,142 million in 2025. Even if it’s on a steady decline like a cigar butt, that’s a lot of money. I think the business is worth ~$50 billion. If they’re able to buy back 150 million shares this year, that would put the diluted share count at 789 million at the end of the year. $50 billion divided by 789 million shares works out $63/share. In other words, PYPL is trading at a substantial discount to intrinsic value.

In conclusion, PYPL is a Ben Graham-style, quantitatively cheap, low to medium quality stock. It is the kind of stock that investors in the current market have little interest in. But given its substantial discount to intrinsic value, it is likely to significantly reward patient investors with a long term outlook from current levels.

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