Over time, a stock will continue to rise thanks to growing earnings. That tends to be the stickiest metric for investors when it comes to rewarding a stock. However, over the course of a quarter, other factors may be at play.
Consequently, that can mean that a company is capable of growing its earnings, but can also be susceptible to market fears along the way over other concerns.
For instance, digital payments company PayPal (PYPL) just beat on earnings and revenues.
But markets didn’t like that the company’s overall margins contracted compared to prior quarters. That’s a solvable problem in time, and as long as earnings are on track, things should continue to go well.
As a result, PayPal now trade at 18 times forward earnings, and gave back some of its recent gains. That creates a buying opportunity for longer-term investors, who can profit from rising earnings growth.
Action to take: PayPal is reasonably valued for investors to start picking up shares here. The stock should start trending higher over time as its earnings improve.
For traders, shares are likely to see a short-term move higher to recover some of their earnings report related selloff. The March $85 calls, last trading for about $1.45, could see high double-digit returns on a trend higher over the coming weeks. Traders may be able to take quick profits as a rebound trade.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.