Companies have to contend with competition. That’s a good thing. Competition means similar services, often with new features that customers demand. Or it can mean lower prices.
When one company announces a new product that directly competes with an existing service somewhere else, shares may take a dive. The extent and length of the drop depends on how credible a new offering is at displacing existing customers.
For instance, Apple (AAPL) is working on ways to improve its payment system, Apple Pay. That’s seen as a direct threat to payment platform PayPal (PYPL).
Apple’s latest iOS is designed to increase tap payments via iPhones. However, given how quickly PayPal’s shares recovered from the new development, it’s likely that their market share isn’t going away anytime soon.
PayPal has been out of favor with the market, with shares up less than 6% in the past 12 months. And the industry leader in the payment space now trades for less than 16 times earnings.
Action to take: Investors may want to build a stake here, and use any price drop to add to it over time.
For traders, PayPal has been steadily trending higher since October. The August $70 calls, last trading for about $3.50, could see mid-double-digit returns on a further trend higher over the coming months.
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.