Forget Nvidia. Two billionaire investors reduced their positions and both bought the same fintech stock.

Billionaire hedge fund pioneer Paul Tudor Jones of Tudor Investment has reduced his stake in the chip giant. nvidia The first quarter undoubtedly saw significant gains in sales. He then put that money into new investments in troubled fintech companies. paypal (PYPL 0.45%).

Jones wasn’t the only investor to make this move, as Coatue Management’s Philippe Laffont took a similar move, adding to his PayPal position while also reducing his Nvidia stake. The investor, worth about $6 billion, piled into PayPal stock, increasing his stake from 27,200 shares at the end of 2023 to more than 8 million at the end of March.

Let’s take a look at what attracted these billionaires to PayPal and whether investors should follow their lead and buy stock.

cheap stocks

One of the first factors that attracted Tutor Investment and Coatue Management to PayPal’s stock is its valuation. The stock has had a rough few years, falling more than 40% over the past five years.

During that period, PayPal still grew its profits solidly. However, we have experienced some gross margin pressure over the past two years. Nonetheless, the stock trades at a very attractive valuation.

PYPL PE Ratio (Forward) Data from YCharts

The company trades only with a forward price-to-earnings (P/E) ratio of just over 15.5x and a forward price-to-earnings (P/S) ratio of nearly 2x. This doesn’t tell the whole story, as the company has $8 billion in net cash and investments, about $1.8 billion of which is in equity investments. Excluding this, the forward P/E falls by nearly 13.5 times.

That’s a cheap valuation, but a cheap stock alone isn’t enough of a reason to invest in PayPal.

Transformation Opportunity

Another big factor that has attracted billionaire investors to PayPal is CEO James Chriss and his plans to transform the company and position it for the future. Chriss took over as CEO of PayPal last September. intuit There he ran the company’s Small Business and Self-Employed Group.

He quickly established himself as a strong leader driving innovation at PayPal. Since Chriss took over, the company has made a number of artificial intelligence (AI)-based advancements. Perhaps the most interesting is the Fastlane product. This new payment solution allows a merchant’s customers to make payments with one tap without having to set up an account and provide credit card information to various merchants. Online retailers lose a lot of potential business when consumers don’t complete their purchases.

In early testing, PayPal merchants testing Fastlane saw an 80% increase in conversion rates. This is a huge win for retailers and makes products like Fastlane very desirable. The company plans to begin launching domestic products in the second half of this year.

PayPal has also introduced a variety of other value-added solutions. It announced several marketing-oriented products such as Smart Receipts and Advanced Offer Platform. This allows merchants to create personalized recommendations and provide tailored offers based on products customers have previously purchased on their website or online. Internet. A fraud management solution was also introduced.

Through innovation, the company is also looking to change the way it prices its solutions. One of PayPal’s problems over the past few years has been worsening gross margins as the company has moved more toward BrainTree, a lower-margin, non-branded solution. Chriss believes the value of PayPal’s solution far exceeds that of competing products, and he plans to price it based on value. On PayPal’s first quarter earnings call, Chriss said this process will take time, but the company is already having conversations with its top customers focused on pricing and commercial outcomes.

Image source: Getty Images.

Is it time to buy stocks?

PayPal is a cheap stock with a strong balance sheet that has continued to grow its earnings solidly. Gross margins have been an issue, but the company clearly has plans to address this through innovation and value-based pricing.

It’s an attractive combination, which is why this stock is starting to attract the attention of high-profile billionaire investors. There’s always a risk that PayPal’s new products won’t gain traction or that its pricing power will be limited, but given its valuation, this looks like a good opportunity to invest in the stock ahead of a potential turnaround. So now is still a good time to buy fintech stocks.