1 Overlooked Stock with Huge Potential
A couple of decades ago, eBay stock was all the rage. Buyers and sellers couldn’t get enough of the platform, transacting in a wide range of goods, and investors couldn’t get enough of the stock. When PayPal was spun out, eBay became a whole lot less interesting to investors, and today it stands virtually ignored. But that’s perhaps precisely where the opportunity lies for savvy investors.
Key Points
- eBay has a 2.29% dividend yield, with consistent increases over five years.
- Management’s share buybacks signal confidence in eBay’s undervalued stock.
- eBay’s balance sheet shows more cash than debt, reflecting its capability to handle economic fluctuations.
What’s To Like About eBay
eBay has a tremendous amount going for it, but few are aware of its attributes. One glaring benefit that most don’t know about it is its dividend yield of 2.29%. Investors who have been around the block and lost track of eBay years ago probably still would consider it a tech stock that pays no yield to income seekers when in fact the payout is quite generous. Better yet, it’s hiked the dividend in each of the past 5 years.
It also looks very attractive from a valuation standpoint. When we ran the numbers, the upside potential was calculated to be over 30% to fair value using a cash flows analysis. Admittedly, the 29 analysts covering the firm are less buoyant on the firm’s prospects and have a consensus value closer to $45 per share, near where the share price is trading now.
But it’s quite possible they are missing the boat as management has signaled their conviction that a gap exists between price and value by buying back shares.
But Wait, There’s More
In a recent article, we covered the phenomenal Coca Cola business model generating 61% gross margins. But eBay wipes the floor with those numbers and posted 71% last quarter.
It’s also forecasting growing net income this year, suggesting not only is it highly profitable but it’s expecting to grow those profits while trading at a low PE ratio of just 8.3x.
And it’s not as if other metrics are lurking in the shadows ready to bite new investors either. Take the return on invested capital that now sits at 13.3%, a high figure that suggests a meaningful sustainable competitive advantage. Or the fact that the company has a lot more cash than debt on its balance sheet, signaling that it can withstand economic turbulence.
Is eBay a Buy?
No matter which way you slice and dice eBay it’s hard to find anything but a compelling bullish thesis. It’s trading at just over 2x sales, under 9x earnings, and has significant upside based on a DCF analysis. Put all those ingredients into the mix alongside a modest but growing dividend yield, and it’s easy to see why eBay should make it onto a watchlist, at the very least.
