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Despite being a leader in the digital payments industry, PayPal (NASDAQ: PYPL) hasn't been the greatest investment for its shareholders lately. Although the stock was a big winner during the coronavirus pandemic, it hasn't performed as well since.

As of this writing, the shares are 81% off their peak price. Should investors buy, sell, or hold this well-known fintech stock?

PayPal's volatile journey

When the pandemic hit, consumers were forced to spend more time than ever at home, which led to a surge in online shopping. This was a huge benefit to PayPal, resulting in significant growth. In 2020, the company saw its active account base and total payment volume (TPV) surge 24% and 31%, respectively. And in 2021, these two figures were each up double-digit percentages again.

When PayPal was on top of the world, its previous chief executive officer, Dan Schulman, said that the company would reach 750 million users by 2025. But after the easing of pandemic-related restrictions and the reopening of the economy, PayPal's growth slowed. And that lofty target was withdrawn. A new reality set in, and shareholders weren't pleased with its financial results, as you can tell by the stock's disappointing performance.

However, I don't think things are as bad as the stock price makes it seem. After reporting revenue growth of 8% in 2022, sales were up 8% again in 2023. And in the first quarter of 2024, PayPal handled $404 billion of TPV, which was up 151% compared to Q1 2019. So not only has the business grown tremendously, but it has held onto those gains.

We still can't ignore the challenges, though. Stubborn inflationary pressures and higher interest rates make the current economic picture uncertain. This has pressured consumer discretionary spending, which is where PayPal excels.

And because the payments market is so lucrative, competition is incredibly fierce. On the consumer side, PayPal goes up against Apple Pay and Block's Cash App. And on the merchant-facing side, PayPal's Braintree must compete with the likes of Adyen and Stripe. This will likely make it extremely difficult for the company's gross margin to expand as these rivals compete on fees.

What should investors do?

Getting back to the original question of what course of action investors should take, we can look at some important factors. I think the reasons to buy and hold this stock are very compelling.

PayPal is a worthy investment candidate partly because the shares are cheap. They trade at a price-to-earnings (P/E) ratio of just 15. Since its spinoff from eBay in July 2015, the stock has averaged a P/E of 46.3. This shows that expectations are low right now.

But that cheap valuation isn't warranted, in my opinion. As a two-sided payment platform, PayPal benefits from network effects. More merchants provide consumers with greater choice. And as more consumers join, merchants that want to broaden their customer base and sales find great value in PayPal. This situation insulates the business from a competitive standpoint.

Moreover, PayPal is benefiting from two trends that are working in its favor. The first one is the rise of digital payments. The second is the popularity of online shopping. Five or 10 years from now, these two themes are only going to be more prominent in the world economy.

The case for buying PayPal stock is compelling, but I'm sure there are shareholders who are thinking about selling. Maybe they have a better investment opportunity to direct that capital to. Or they could simply be bearish on PayPal's long-term outlook. At the end of the day, it all comes down to your view of the business -- and the stock.

Should you invest $1,000 in PayPal right now?

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adyen, Apple, Block, and PayPal. The Motley Fool recommends eBay and recommends the following options: short July 2024 $52.50 calls on eBay and short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.