eBay Stock Will Deliver Strong Gains In Today’s Value-Oriented Market

Choppy markets require creative thinking above all, and choosing stocks that many investors think have moved beyond their heyday. With the market adopting more of a value-conscious bent over the past few months, I think eBay (EBAY) has begun to shine even more as a candidate for outperformance in 2022.

At the moment, trading in the low $60s, shares of eBay have declined 5% since the start of January, and more than 20% relative to highs above $80 notched in November, before it began decaying alongside many other tech stocks. This dip, in my view, gives investors a great opportunity to re-assess this legacy e-commerce titan.

I have not always been positive on eBay. For many years I viewed the stock as simply a legacy e-commerce play past its expiration date, destined to be overtaken and reduced to nothing by counterparts like Amazon (AMZN).

Then, the pandemic breathed second life into eBay. Revenue and GMV jumped to growth rates not seen in years, thanks to buyers’ shift to online channels. eBay’s transactions grew, particularly in niche categories like collectibles in which Amazon has a far thinner presence. And though now eBay’s GMV is down versus pandemic-level heights, the company is still growing revenue thanks to its shift toward managed payments, giving eBay a far expanded take rate and more monetization over its end-to-end customer transactions.

There’s no doubt that eBay is a collection of mixed signals. In spite of the revenue growth, investors are understandably nervous about the fact that eBay’s active buyer base has declined over the past several quarters as the pandemic recedes into the background. A marketplace like eBay, above all, requires critical mass, and the minute this fades, eBay ceases to become relevant. We note, however, that GMV is still up versus 2019 levels.

What keeps me appealed to eBay in particular, however, is its value. Wall Street analysts are currently expecting eBay to generate $4.51 in EPS this year (data from Yahoo Finance), representing 14% y/y EPS growth on 6% y/y expected revenue growth to $11.0 billion. At current share prices near $63, this indicates that eBay is trading at just a 14.1x forward P/E ratio, which represents a ~50% discount to the S&P 500’s current forward P/E at ~21x. Sure, there’s certainly fundamental risk in eBay as a legacy e-commerce stock: but is that risk worth the wide valuation disparity versus the broader market? In my view, the cheapness of eBay’s stock more than makes up for the potential risks.

Another aspect to consider is how shareholder-friendly eBay has been of late. eBay is currently yielding ~1.1%, which isn’t impressive on its own, but the company also has $5 billion remaining on its stock buyback authorization – which, at eBay’s current market cap of ~$40 billion, covers a healthy ~12% of eBay’s market cap. To me, the combination of capital returns plus a cheap valuation in a market that has shunned…