eyeQ: Apple threat just one reason to worry about this stock
interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to analyse macro conditions and generate actionable trading signals. This time it analyses a big money business.
12th June 2024 11:38
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
PayPal
Trading signal: long-term strategic model
Model value: $61.45
Fair Value Gap: +5.12% premium to model value
Model relevance: 81%
Data correct as at 12 June 2024. Please click glossary for explanation of terms.
PayPal’s stock price has bounced recently. That bounce has not been justified by macro conditions. eyeQ model value for the stock is, at best, range-bound; at worst, grinding slowly lower (it’s fallen 1.9% over the last four weeks)
The divergence between the two leaves PayPal Holdings Inc (NASDAQ:PYPL) just over 5% rich to where the big picture stuff such as growth and inflation say it “should” trade. It was 8.4% rich to model on Monday, which was towards the top end of recent Fair Value Gap ranges. It has already started to “catch-down” to macro conditions but has room to fall more.
As always, further research on the stock is required to give the company fundamental perspective. But, even as a macro investor, we’re aware of some critical themes such as the idea that PayPal is threatened by the growth of buy-now,-pay-later providers.
This week, the headlines coming out of the Worldwide Developers Conference (WWDC) are dominated by Apple Intelligence – Apple Inc (NASDAQ:AAPL)’s foray into the AI space. But they also announced the launch of “Tap to Cash”, their version of a peer-to-peer payments system that represents direct competition to PayPal.
From a pure macro perspective, today’s US CPI report and Federal Reserve monetary policy meeting are critical. Tactical investors might want to wait and see if we get a low inflation/dovish Fed combination. That would lift equity markets generally. But, even if markets rally, we’d expect PayPal to lag given it already trades rich. And any bad news on the US inflation/interest rate outlook, and the stock looks especially vulnerable.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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Disclosure
We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.
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