To The Moon

• Scale, improving operational metrics, and low valuation are key positives.
• Its Venmo digital wallet is also a major growth driver for PayPal.
• The company faces stiff competition, but may emerge as a long-term winner.

Shares of PayPal Holdings$PayPal(PYPL)$ (PYPL2.70%)are currently down by more than 74% from their all-time high. The fintech pioneer's stock price has cratered due to investors' worries that rising inflation and slowing economic growth will affect consumer discretionary spending. The market is also concerned about a decline in e-commerce transactions as the world reverts to in-person shopping, the impact of eBay$eBay(EBAY)$ 's transition to its own payments system, and the loss of transactions in Russia because of the ongoing Russia-Ukraine conflict.

Yet there remain at least three compelling reasons to view PayPal as a long-term buy -- and there's also one solid reason why you might want to sell the stock this month. Let's consider.

Reason to buy No. 1: Improving operational metrics and scale

PayPal management now forecasts net revenue growth for 2022 in the range of 11% to 13%, down from its previous guidance range of 15% to 17%. While the company is not immune to macroeconomic challenges, the increasing adoption of e-commerce and digital payments will continue to benefit it in the long run. The company's scale -- as evidenced by its $1.25 trillion in 2021 total payment volume -- should help it successfully navigate the recessionary headwinds. PayPal expects total payment volume to exceed $1.4 trillion in 2022.

At the end of the first quarter, PayPal had 429 million total active accounts, including 35 million merchant accounts. It doubled its merchant accounts from 2020 to 2021. PayPal also processed 5.2 billion transactions in the first quarter, up 18% year over year despite a 54% drop in transaction volume from eBay. Transactions per active account, a metric indicative of customer engagement, grew 11.4% year over year to 47 in the quarter.

Despite the many headwinds, PayPal is guiding for more than $5 billion in free cash flow in 2022. The company is highly profitable and is expected to report non-GAAP earnings per share in the $3.81 to $3.93 range in 2022.

Reason to buy No. 2: The growing strength of the Venmo app

PayPal has been increasingly focused on monetizing its other consumer-focused digital wallet, Venmo. In the first quarter, Venmo's payment volume rose 12% year over year to $58 billion. Besides peer-to-peer payments, Venmo also enables credit card payments, in-store QR code payments, and cryptocurrency purchases. And the company'spartnershipwith Amazon$Amazon.com(AMZN)$ (AMZN4.11%), which allows the e-commerce giant's customers to use Venmo for payment, could prove to be another major growth driver.

Reason to buy No. 3: PayPal's low valuation

PayPal's share price is down by over 58% so far this year, which has pulled its valuation down to a similar degree.

The stock is currently trading at 3.2 times forward sales-- almost at the bottom of its historical range since the company turned profitable. Management is also deploying free cash flow aggressively to buy back PayPal shares, a move that is expected to reduce share price volatility in the short run. This exaggerated pullback presents an attractive entry point for retail investors.

A reason to sell: Rising competition from tech giants in the digital payments space

While PayPal's business fundamentals look strong, rising competition in the digital payments space -- especially from technology stalwarts -- is a risk that should not be ignored. Although it accounted for almost half of the global market share in the payment processing software space as of September, PayPal faces stiff competition from Amazon, Shopify$Shopify(SHOP)$ (SHOP3.52%), and Stripe.

Recently, Amazon made Prime shopping benefits available for all Prime merchants and customers, even on third-party websites. According to Oppenheimer analyst Dominick Gabriele, the "Buy with Prime" function will compete directly with PayPal for small merchants' business.

These competitive pressures look even more daunting when considering the possibility of a U.S. recession in 2022. If consumer spending contracts, total payment volume and account growth may decline as well.

PayPal remains an attractive pick

Although the competitive challenges PayPal faces amid a difficult macroeconomic environment cannot be ignored, the company still has several positives in its favor.

PayPal has positioned itself as a leading fintech player in an increasingly digital world. With PayPal's digital wallet accepted by 76% of the1,500 largest online merchantsin North America and Europe, the company boasts solid brand power. This, coupled with the scale of the business and the stock's dirt-cheap valuation, makes it an incredible buying opportunity for investors now.