CNBC
Credit card stocks American Express and Visa may be underperforming the market this year, but it’s a different story for the digital payment players.
Square and PayPal have soared 180% and 89%, respectively.
Don’t take PayPal’s and Square’s outperformance as evidence they can continue to outperform, though, warned Gina Sanchez, founder and CEO of Chantico Global and chief market strategist for Lido Advisors.
“These are stocks that have actually expanded from momentum and multiple expansion, but the underlying decline in spending is actually hitting all of these companies pretty squarely in the gut,” Sanchez told CNBC’s “Trading Nation” on Thursday. “The reality is that the digital plays are extremely overvalued.”
Square trades at 167 times forward earnings and PayPal at 46 times. Both have a higher multiple than Visa at 34 times and American Express at 17 times.
Square and PayPal likely trade at higher valuations compared with Visa or Amex given their position at the intersection of finance and technology. However, Sanchez said that reasoning is not justified.
“They’re both driven by the same thing — consumption. You need transactions in order to support all of these plays, and so I would argue that psychologically you can tell yourself that [justification] but I don’t know that it’s going to play out over a period in your portfolio,” said Sanchez.
Looking for information about how COVID-19 has impacted the payments industry?
The Strawhecker Group (TSG) and Visa Consulting & Analytics (VCA) teamed up to survey a representative sample of U.S. consumers, and analyzed Visa’s proprietary spend data, with the goal of understanding how the COVID-19 pandemic has impacted consumer lifestyles, payments trends, and how behaviors may change after the pandemic.
Click here to download TSG and Visa’s infographic, Purchasing in a Pandemic.