Shares of (NASDAQ: PYPL) are trading for 76% less than the peak price they reached nearly two years ago. But that doesn't necessarily make it a smart stock to buy. The stock is down because the payment processor's earnings also declined from their previous peak.

Even experienced investors can sometimes forget that no matter how far a stock has already fallen, it can keep falling until it reaches zero. If PayPal's earnings start contracting again, investors who buy the stock now, at what looks like a bargain price could still suffer significant losses.

Let's take a quick look at how well PayPal's underlying business is performing to see if the stock market is responding rationally to the company's earnings contraction.

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Source Fool.com