Comparing SLM Corporation (SLM) and PayPal Holdings, Inc. (PYPL)

SLM Corporation (NASDAQ:SLM) shares are up more than 5.66% this year and recently increased 0.08% or $0.01 to settle at $11.94. PayPal Holdings, Inc. (NASDAQ:PYPL), on the other hand, is up 8.33% year to date as of 01/11/2018. It currently trades at $79.75 and has returned 3.94% during the past week.

SLM Corporation (NASDAQ:SLM) and PayPal Holdings, Inc. (NASDAQ:PYPL) are the two most active stocks in the Credit Services industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.


Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect SLM to grow earnings at a 28.29% annual rate over the next 5 years. Comparatively, PYPL is expected to grow at a 20.17% annual rate. All else equal, SLM’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return., compared to an EBITDA margin of 20.86% for PayPal Holdings, Inc. (PYPL). SLM’s ROI is 1.00% while PYPL has a ROI of 9.20%. The interpretation is that PYPL’s business generates a higher return on investment than SLM’s.

Cash Flow 

The amount of free cash flow available to investors is ultimately what determines the value of a stock. SLM’s free cash flow (“FCF”) per share for the trailing twelve months was -0.08. Comparatively, PYPL’s free cash flow per share was +0.69. On a percent-of-sales basis, SLM’s free cash flow was -3.02% while PYPL converted 7.65% of its revenues into cash flow. This means that, for a given level of sales, PYPL is able to generate more free cash flow for investors.

Liquidity and Financial Risk

SLM’s debt-to-equity ratio is 8.94 versus a D/E of 0.00 for PYPL. SLM is therefore the more solvent of the two companies, and has lower financial risk.


SLM trades at a forward P/E of 12.85, a P/B of 2.55, and a P/S of 3.85, compared to a forward P/E of 35.23, a P/B of 6.21, and a P/S of 7.58 for PYPL. SLM is the cheaper of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SLM is currently priced at a -20.13% to its one-year price target of 14.95. Comparatively, PYPL is -2.58% relative to its price target of 81.86. This suggests that SLM is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.70 for SLM and 1.90 for PYPL, which implies that analysts are more bullish on the outlook for PYPL.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SLM has a short ratio of 5.52 compared to a short interest of 1.99 for PYPL. This implies that the market is currently less bearish on the outlook for PYPL.


PayPal Holdings, Inc. (NASDAQ:PYPL) beats SLM Corporation (NASDAQ:SLM) on a total of 7 of the 14 factors compared between the two stocks. PYPL is growing fastly, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. In terms of valuation, SLM is the cheaper of the two stocks on an earnings, book value and sales basis, Finally, PYPL has better sentiment signals based on short interest.

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