PayPal Holdings (PYPL -3.25%) has lost investor confidence in recent years. Its stock has plunged 77% from its 2021 peak, but the payments processor remains popular among its 434 million active users. The company has overhauled its leadership team in hopes of revitalizing growth and restoring confidence among shareholders.

Any time a stock drops significantly from its highs, especially one of a company as profitable as PayPal, it's worth exploring to determine whether investors should buy, sell, or hold it.

Here's why PayPal's stock is struggling

While digital payments surged during pandemic lockdowns, PayPal benefited from a boom in e-commerce, but that momentum faded as in-person shopping rebounded. At the same time, competition from Apple Pay, Block's Cash App, and other fintech players has intensified, making it harder for PayPal to maintain its dominance in business and consumer payments.

Revenue growth decelerated significantly in 2022 and 2023, rising 8% annually compared to the double-digit gains during the pandemic. Meanwhile, higher transaction costs and increased investments in new initiatives have squeezed margins, leaving profitability flat.

PayPal replaced longtime CEO Dan Schulman with former senior Intuit executive Alex Chriss in September 2023 and overhauled its board of directors in the proceeding months. Chriss pointed to its high cost basis for slowing PayPal down, adding, "The company's focus has not been clear."

As for 2024, PayPal generated $31.8 billion in net revenue, up 7% year over year, which resulted in $4.2 billion in net income, a decline of 2% year over year. The earnings decline was in part due to a 7% increase in operating expenses, like a $438 million "restructuring and other" expense. As a result, PayPal's operating margin fell from 16.9% in 2023 to 16.7% in 2024.

Finally, PayPal's user growth appears to be stagnating. While the company had 434 million active users at the end of Q4 2024, that represented only a 2.1% increase from Q4 2023.

The good news for PayPal's shareholders

Despite slowing growth, PayPal shareholders have reasons to remain optimistic. The company is debt-free, with $943 million in net cash, allowing it to avoid interest expenses in a high-rate environment while maintaining the flexibility to pursue acquisitions or aggressively repurchase shares.

Management has focused on the latter; buying back 92 million outstanding shares for $6 billion in 2024, reducing the total share count by 7.4%. If you zoom out to the past three years, management has lowered the company's outstanding shares by nearly 15%.

While PayPal's stock price has faced challenges, patient investors have increased their ownership stake by holding. And with the company's newly announced $15 billion share repurchase program, this aggressive buyback strategy is set to continue, further concentrating value for those who stay the course.

PYPL Shares Outstanding data by YCharts

Lastly, from a valuation perspective, the stock still appears undervalued. Based on management's projected earnings per share (EPS) of $4.95 to $5.10 for 2025, it is currently trading at a forward price-to-earnings ratio of 14 to 15 -- its lowest multiple in the past six months.

PYPL PE Ratio (Forward) data by YCharts

New management looks to restart its growth

Stock buybacks and an attractive valuation are encouraging, but many investors may ultimately be looking for something more: the return of meaningful business growth. For PayPal, that means evolving beyond its core payments business into a broader commerce platform that "helps merchants win every sale and helps consumers shop smarter," according to Chriss.

At its recent Investor Day, the company introduced PayPal Open, a unified merchant offering that consolidates its services into a single platform tailored to businesses of all sizes. Regarding its financial outlook, management expects "low teens" non-GAAP (adjusted) EPS growth by 2027, with a longer-term target of 20% annual growth. Chriss has bold aspirations: "Our vision is for PayPal to be the commerce platform powering the global economy, and we have the scale, ubiquity, and data advantages to make that happen."

Whether PayPal can successfully execute this transformation remains to be seen, but investors now have clear benchmarks to track its progress.

Is PayPal a buy, sell, or hold?

PayPal is at an inflection point, and given its current stock price, the market appears doubtful about the future of a company that has long been a dominant force in the payments industry. However, with its attractive valuation and steady profitability, even modest growth could be enough to drive a meaningful rebound in the stock price. The biggest question over the next few years will be whether that growth materializes, but even if it doesn't, the downside risk seems limited at this stage. Given these factors, PayPal presents a compelling opportunity worth adding to your portfolio today.