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One value stock caught my eye recently eBay (NASDAQ: EBAY). It has a good run in 2024, but it remains to be seen dirt cheap.
Could it be one of the best value stocks on the market today? Let's take a look.
eBay is a company that I know very well as I have been a user of the online shopping platform for over 20 years now. I'm a huge fan – not only have I bought tons of gear from them over the past twenty years but I've also sold a ton of stuff I don't need.
I wish I had invested in the company at some point. If I had done that ten years ago, I would have three times my money as the share price rose from $22 to $63 during that time.
It may not be too late to get in here. As I mentioned earlier, the stock looks cheap right now. With Wall Street analysts predicting earnings per share of $5.17 next year, the forward price-to-earnings (P/E) ratio here is only 12.2.
Price available today
That strikes me as a low price. Admittedly, this is not the growth company it was two decades ago. Currently, income is only growing by a few percent per year. But this company has a lot going for it from an investment perspective, in my opinion.
First, it buys more shares. In the five-year period until the end of 2023, its return yield was a staggering 14.1% (return yield calculated by dividing net purchases by initial market capitalization). This buying activity should increase earnings per share, which should increase the share price over time.
It also increased its profits at a rapid rate. Over the past three years, the payout has risen from 64 cents per share to $1 per share (56% growth). Currently, the yield is around 1.7%. But it could be much higher in the coming years if the company continues to increase its payout. It is noteworthy that the dividend coverage ratio (earnings per share divided by dividends per share) is very high at almost four. So there is a lot of potential for profit growth.
Another thing you may like here is the return on operating income (ROCE). It is quite high at about 13%. This means that the company is working effectively in generating profit. Companies with high ROCE often turn out to be good long-term investments.
High value stock
In terms of the bear case, one risk is competition from other online retailers. Today, eBay faces intense competition from both Chinese online shopping companies such as Temu and new e-commerce players such as resale clothing platform Vinted.
This is an issue that needs to be addressed. The good news here is that eBay has a really strong product – hopefully this will help it retain market share.
Overall, I believe there is a lot to like about this stock and I think serious investors should consider buying it. I think it could be one of the best value stocks in the market today.
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