PayPal vs. Western Union: Which Value Stock Is a Better Buy?

Two beat-up fintech companies, PayPal (PYPL -0.71%) and Western Union (WU -1.85%), have likely attracted attention from value investors lately. Both stocks' valuations look appealing relative to underlying business fundamentals. Even more, both companies are buying back stock in droves, suggesting management thinks shares are undervalued. With both PayPal and Western Union having just reported earnings, it's a good time to compare these value stocks to see which one is a better buy. PayPal: Steady growth and a ton cash Riddled by worries about increasing competition in the online checkout space, PayPal stock has fallen an incredible 75% over the past three years. Interestingly, however, the company's top line has continued to grow steadily. Total revenue in 2022 and 2023, for instance, increased 7% and 8% year over year, respectively. Further, revenue in the first and second quarters of 2024 rose 9% and 8%, respectively. But these growth rates are notably down quite a bit from 17% growth in 2021. With this said, a 76% decline in PayPal's stock price has arguably more than made up for this slowdown. Today, PayPal has a price-to-earnings ratio of just 16, despite growing its revenue at steady high single-digit rates and increasing its earnings per share 17% in its most recent quarter. Considering its conservative valuation alongside its growing business, shares of PayPal look quite attractive. One particularly compelling aspect of PayPal stock is that it is rich with cash. Total cash, cash equivalents, and investments totaled $18.3 billion at the end of Q2. This sum towered over total debt of $12.2 billion. A combination of a war chest of cash, steady growth, and a profitable business mean PayPal can repurchase lots of shares. Indeed, it spent $1.5 billion buying back stock in Q2 alone. Western Union: A dirt cheap value play Money transfer specialist Western Union is similarly buying back its stock. Though the $176 million it has spent on buybacks year to date may seem small, some context is in order. First, this is on top of the $159 million it has paid in dividends. Second, this sum is large relative to Western Union's market capitalization of only $4 billion (compare this to PayPal's market capitalization of $68 billion). When it comes to business growth, Western Union doesn't look so good. Second-quarter revenue decreased 9% year over year. But the company's earnings seem to have stabilized. 2023 earnings per share were $1.68 and management expects full-year 2024 earnings to be between $1.62 and $1.72. Fortunately for investors interested in Western Union, the stock is trading low enough to make up for its inferior business growth relative to PayPal. Shares trade at just 7 times earnings. Which stock is the better buy? With PayPal's price-to-earnings at a 130% premium to Western Union, the cheaper of the two stocks arguably looks a better buy. Not only does Western Union's incredibly low price-to-earnings ratio make the stock look attractive but some risk is taken off the table for Western Union shareholders every time the company pays out its quarterly dividend. With a dividend yield of 7.3%, Western Union's dividend payments are nothing to sneeze at. Of course, there's always the risk that the company will pause or reduce its dividend. So investors will have to watch closely to see if this happens. If it does, shareholders might be forced to tweak their investment thesis. Overall, Western Union stock's extremely cheap valuation and its robust dividend combine to make it the better buy of these two value stocks.