We recently published a list of the 11 Most Undervalued Quality Stocks to Buy Now. In this article, we are going to take a look at where PayPal Holdings Inc. (NASDAQ:PYPL) stands against other undervalued quality stocks to buy now.

On February 24, Kayne Anderson Rudnick chief market strategist Julie Biel joined ‘The Exchange’ on CNBC to discuss her thoughts on how good quality companies can ride out turbulence in the market. Just like Warren Buffett and Charlie Munger, Biel also suggests inaction as an investment principle and believes that holding high-quality companies can help investors deal with market volatility. She emphasized conviction in investing instead of impulsive decision-making. Biel also noted the general resilience of the US economy, which mainly comes from a robust jobs market as it fuels the consumer-driven economy. She also expressed unease over the limited tools available to address a potential recession that could come from high levels of deficit spending. She thinks inefficient businesses should be allowed to fail while protecting employees during economic cycles.

Biel addressed small-cap stocks and explained that they struggle due to their higher leverage and sensitivity to prolonged higher interest rates. They often include significant exposure to real estate and banking sectors and have a high proportion of non-earning companies. She then emphasized that even if one were to invest in small caps, the ideal approach would be to look at high-quality small-cap companies that can yield strong results. Biel’s stock picks are quality companies that focus on tangible and physical solutions instead of those with foundations in hyped technologies like AI. While she acknowledged AI’s potential, she argued that it’s becoming standard and can no longer be categorized as a differentiator.

Our Methodology

We sifted through the Vanguard U.S. Quality Factor ETF holdings to compile a list of the top stocks that had a forward P/E ratio under 15 as of April 14. We then selected the 11 undervalued stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

A consumer in a cafe paying for goods using a mobile payment app.

PayPal Holdings Inc. (NASDAQ:PYPL)

Forward P/E Ratio as of April 14: 12.52

Number of Hedge Fund Holders: 94

PayPal Holdings Inc. (NASDAQ:PYPL) operates a tech platform that enables digital payments for merchants and consumers. It operates a two-sided network that connects merchants and consumers. It enables customers to connect, transact, and send and receive payments online and in person, as well as transfer and withdraw funds using various funding sources, such as bank accounts or Venmo.

In 2024, the company’s branded checkout segment saw consistent quarterly growth in transaction margin dollars. US growth in particular accelerated during the fourth quarter of this year. Upgraded checkout experiences, which are now live for more than 25% of US traffic, reduced latency by 40%, and boosted conversion rates by 1%. Fastlane, which is the company’s streamlined checkout feature, also reached ~2,000 merchants and attracted 75% new or re-engaged PayPal users.

The Buy Now, Pay Later (BNPL) segment of the company had $33 billion in total payment volume, which marked a 21% year-over-year increase in 2024. BNPL users spend 30% more on average as compared to the rest of PayPal Holdings Inc.’s (NASDAQ:PYPL) users. For 2025, the company plans to expand globally and deepen merchant partnerships, while growing its omnichannel presence.

Longleaf Partners Fund stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2024 investor letter:

“PayPal Holdings, Inc. (NASDAQ:PYPL) – Digital payments platform PayPal was a contributor for the quarter and the year. The company delivered strong results, with gross margin dollars continuing to grow in the mid-high single digits for the last few quarters. Effective cost management further contributed to double-digit FCF growth, a key metric in our analysis. PayPal also demonstrated its commitment to enhancing shareholder value by repurchasing shares at a 10% annualized basis in the most recent quarter, leading to even stronger FCF per share growth. Much of what we envisioned at our initial investment has materialized quicker than anticipated. This strong performance has been driven by the improved leadership of relatively new CEO Alex Chriss.”

Overall, PYPL ranks 2nd on our list of the most undervalued quality stocks to buy now. While we acknowledge the growth potential of PYPL, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than PYPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.