Motley Fool: A ‘Fintech’ Giant

PayPal (Nasdaq: PYPL), a pioneer in internet payment processing, is undergoing a transition. The financial technology (“fintech”) company’s management is culling unprofitable products and segments to build a more profitable business. That’s weighed on the company’s revenue growth, but it’s likely not a long-term concern.

Last year saw a strong recovery in adjusted earnings per share, up 21% . Still, management expects the transition to continue in 2025, and it’s projecting single-digit growth in the near term. But PayPal, also home to Venmo, is still the leading payments network on the internet. That gives it a significant competitive advantage, enabling it to win more merchants and, in turn, drive more consumers to sign up .

So long-term investors have an opportunity to buy shares now at a lower price. PayPal’s stock recently sported a forward-looking price-to-earnings (P/E) ratio of 14, well below the five-year average of 20. For a stock capable of growing quickly, that’s a discount.

As management focuses on improved profitability, steady revenue growth and profit margin expansion should result in healthy growth in net income. Combining that with a focus on repurchasing shares, PayPal stands a good chance of growing its earnings per share substantially in the coming years. (The Motley Fool owns shares of PayPal and recommends its stock and options.)

Ask the Fool

Q. What, exactly, does it mean if I’m in the 22% tax bracket? That I pay 22% of all my income in taxes? – E.S., Bath, Maine

A. You’re smart to ask, because many people assume that’s the case – and it’s not. That 22% is your “marginal” tax bracket – your highest rate, paid on your top tier of income.

For the 2024 and 2025 tax years, there are seven federal income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Each bracket applies to a certain range of earnings. Let’s say you’re single and your taxable income for 2024 is $75,000. You’d pay 10% on your first $11,600 of income (that’s $1,160), 12% on your income from $11,601 to $47,150 ($4,266) and 22% on your income from $47,151 to $75,000 ($6,127). (That 22% bracket covers income up to $100,525, by the way.) Add those three amounts for your total tax: $11,553. Divide that by your taxable income of $75,000, and you’ll see that you paid a little over 15% of your income in federal taxes. That’s your effective tax rate, reflecting your total taxes paid, and it’s more meaningful than your marginal rate.

Q. What’s the “efficient market” hypothesis? – T.R., Grand Rapids, Michigan

A. It suggests that all (or most) available information is factored into the price of stocks. Therefore, a particular stock can’t be over- or undervalued, and investors can’t outperform the overall market consistently by using their brains.

Critics of the hypothesis see the stock market as only somewhat efficient, as many investors act on emotions (such as greed or fear) instead of rational reasoning. They point to the long-term outperformance of investors such as Warren Buffett as proof that the market isn’t purely efficient.

My Dumbest Investment

My most regrettable investing move? That’s easy: I have a sense of what will happen in the future, but there’s a lot I don’t know, so I sometimes blindly follow advice. And that has come at a cost – most recently, $40,000 just this year. I know I should take in what everyone says and then evaluate it all, not making any moves until I see the logic and am confident that I’m making an informed decision. The problem is, I learned that lesson and then relearned it twice this year alone. I’ve got it now. Losing money leaves a big impression. – P., online

The Fool responds: Experience is one of the best teachers, but it can be a painful way to learn. You’re smart to have figured out that no financial advice should be followed blindly, as your hard-earned dollars and perhaps your future financial security are at stake. If you like what you read about a certain investment, take some time to hunt down the risks it faces – because almost every investment opportunity has some upsides and downsides. Weigh them, consider them in light of your risk tolerance and make a decision you can take responsibility for.

Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.