Is EBay A Buy?

  • eBay has struck a balance between growth and profitability, something which its peers haven’t figured out yet.
  • The recent correction in eBay stock price can be attributed to temporary problems.
  • The company continues to trade at a discount to peers presenting an attractive entry point for long term investors.

Is EBay a buy

EBay (NASDAQ:EBAY) has been in the news over the last couple of months for a variety of reasons. The proposal of Carl Icahn to spin off PayPal was warmly received by stockholders, even though the eBay management vehemently opposed the same. The stock price showed a clear upside upon news of the proposal. However, within three months Carl Icahn has withdrawn his proposal and the stock price has retraced to its lowest levels in the year-to-date, closing Monday with a 0.47% drop to $50.49. The question in every investor’s mind is whether or not eBay is a buy at its current levels and what to expect from the E-commerce-cum-payments giant. Our today’s post focuses on eBay’s fundamentals and valuations to answer this question.

eBay: Strong fundamentals as compared to peers

EBay, in our opinion, has struck a fine balance between growth and profitability even as peers like Amazon and Overstock struggle to find this balance. The table below displays the topline growth, EBITDA margins and free cash flow margins for the three companies for the just concluded earnings season.

(Q1 2014)




Revenue growth




EBITDA margin




Free cash flow margin




Looking at the chart above it is a clear fact that eBay is an out performer in the sector on a combined measure of growth and profitability. But does eBay enjoy a superior valuation as compared to its peers?

eBay valuation multiples at attractive levels

We now take a look at the Last Twelve Months price-to-earnings (LTM P/E) multiple and the LTM price-to-sales multiples of the three companies.








Adjusted P/E




While rationality would give premium valuation to EBay, the markets often operate outside the limits of rationality. EBay, in contrast to its more profitable and cash generating operations, has a cheaper P/E multiple in contrast to its peers. Hence EBay is clearly trading at prices well supported by the fundamentals and is less of a momentum stock as compared to Amazon and Overstock.

Let’s now look at the year-to-date stock price change of the respective companies in the chart below.

AMZN EBAY OSTK year-to-date stock price change

The momentum stocks Amazon (-22%) and Overstock (-50%) have seen a heavy correction over the last few months, trading in line with the broader markets. eBay (-7%), on the other hand, with its stock price supported by solid fundamentals toppled lesser than its peers on a comparative basis. The fall over the last couple of months is attributable to Icahn’s decision to withdraw his proposal and recent troubles at eBay.However,  given the earnings focussed model of EBay at its current valuations, makes it attractively priced for the long term. Hence it could present long term investors with an attractive entry point.

To see EBay’s latest stock price movement, click here (NASDAQ:EBAY)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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