With a daily gain of 2.8% and a three-month loss of -2.24%, eBay Inc (EBAY, Financial) has an Earnings Per Share (EPS) of 2.47. This article aims to answer the question: Is eBay (EBAY) significantly undervalued? We invite you to read on for an in-depth valuation analysis.
Company Overview
eBay operates one of the largest e-commerce marketplaces globally, with $74 billion in gross merchandise volume in 2022, making it a top 10 global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments. The platform connects more than 132 million buyers and roughly 20 million sellers across almost 190 global markets. Over 50% of eBay's gross merchandise volume comes from international markets, with a significant presence in the U.K., Germany, and Australia.
At its current price of $44.5 per share, and with a market cap of $23.70 billion, eBay's stock appears to be significantly undervalued when compared to its GF Value of $70.48.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Our analysis suggests that eBay (EBAY, Financial) is significantly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Therefore, as eBay is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. eBay has a cash-to-debt ratio of 0.87, which is better than 61.07% of companies in the Retail - Cyclical industry. GuruFocus ranks the overall financial strength of eBay at 6 out of 10, indicating that eBay's financial strength is fair.
Profitability and Growth
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. eBay has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $9.90 billion and Earnings Per Share (EPS) of $2.47. Its operating margin is 22.22%, which ranks better than 95.34% of companies in the Retail - Cyclical industry. Overall, the profitability of eBay is ranked 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of eBay is 26.5%, which ranks better than 87.09% of companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, eBay's ROIC was 11.79, while its WACC came in at 9.28.
Conclusion
In summary, eBay Inc (EBAY, Financial) is significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 0% of companies in the Retail - Cyclical industry. To learn more about eBay stock, you can check out its 30-Year Financials here.
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