A few days ago, I shared my stock analysis guide in the article “The 4 Most Important Metrics If You Are Just Starting Your Passive Income With Stocks”
The 4 Most Important Metrics If You Are Just Starting Your Passive Income With Stocks
All you need to know to make your first step into financial independence
When I do my research, I basically prefer to take a look at the big picture rather than to do detailed and complex mathematical evaluations.
“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.” — Warren Buffet
For today’s article, I have picked a 1990 tech-stock and the founder of the online market space for you.
Let’s take a closer look at eBay.
My Investment Thesis
eBay provides online-market places and has a strong and globally recognized brand.
I personally have a very bearish opinion of the global economy.
I believe the top 90 % of people will be dealing with serious financial issues in the coming 5 years. Unfortunately a lot of people and might be forced to sell products and buy second-hand.
“Consumer behavior is rapidly evolving, and this dynamic has been accelerated by COVID-19, contributing to a significant volume acceleration and new customer acquisition. “ — CEO Jamie-Iannone
eBay, Inc. (EBAY) CEO Jamie Iannone on Q2 2020 Results - Earnings Call Transcript
eBay, Inc. (NASDAQ:EBAY) Q2 2020 Earnings Conference Call July 28, 2020, 05:00 PM ET Company Participants Joe Billante…
Even after 25 years in a changing and competitive tech environment, the company is still in business and has a lot of loyal “eBayers”.
The app is very well designed and has a great rating of 4.7 stars by more than 100 million downloads in the android-store alone.
Who Should Invest:
eBay is a mature company with modest growth, a low dividend yield, and an average balance sheet.
It’s suitable for income investors with a 10 years + investment horizon.
Before you jump into my analysis, I would recommend checking out eBay’s most recent investor presentation.
Let’s go through the 4 most important metrics for our stock-research.
The company aims to become the best global marketplace to buy and sell products.
“Put simply, our vision is to build on the company’s powerful strengths to become the best global marketplace for buyers and sellers through a tech-led re-imagination of eBay.
We’ve come a long way in our nearly 25 years, growing from our founder’s first sale of a broken laser pointer into a global platform with more than 180 million buyers and tens of millions of sellers worldwide exchanging over $85 billion of goods.” — CEO Jamie-Iannone
Here are the most important questions:
- How will the market in which the company operates develop over the next 10 years?
It’s estimated the global E-commerce market will reach $67 billion by 2030, growing by 13.5% annually over 2020–2030, mainly driven by the rising online shopping and digital transactions amid the COVID-19 pandemic.
E-commerce Market 2021 By Industry Growth, Size, Share, Demand, Trends and Analysis Research Report…
The MarketWatch News Department was not involved in the creation of this content. Sep 17, 2020 (AmericaNewsHour) …
Who is the Leader of the Company? Does he have a clear vision?
Jamie Iannone is 47 years old and since April 2020 eBay Chief Executive Officer. He has previously worked for Walmart as the CEO of the U.S. e-commerce business and had different roles before in technology and e-commerce related areas. In his view, eBay has “enormous untapped potential”
I noticed that the average tenure for eBay executives is only 5 years.
Who Are the Competitors? Is the Company Vulnerable to Disruption Through Emerging Technologies?
eBay competes with deep-pocketed competitors like Amazon and Facebook.
Both offer marketplaces.
I believe Facebook will become a serious competitor in the local second-hand business. For example, if I want to sell my bike in the neighborhood, I would check both eBay and Facebook.
However, I want to buy a very specific product, like a baseball card, I will be more likely to check my eBay app.
It’s important to notice,
The competition is not about products, however. it’s also about employees. I believe that many young talents would rather go to Facebook, Apple, Google, and Co. than to eBay.
The second most important metric is the value of the stock.
There are prices and values.
The price is the quote on the stock exchange. The value is your personal estimation that you have unlocked through research.
“Price is what you pay. Value is what you get.” — Warren Buffett
Here are the most important questions:
Does the Company Trade Below or Above your Calculated DCF-Fair Value?
The Fair Value of eBay is roughly at $59 per share, which is fairly close to today’s share price quote of $53.
Calculating The Intrinsic Value Of eBay Inc. (NASDAQ:EBAY)
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How Does the Company Perform With its Price / Earnings and Price / Book Ratio?
It is the most reasonable tech-companies and usually trades of a P/E- Ratio of 15, but increased to a P/E-Ratio of 20.
(Earning per Share of $2.72 / share price of $54)
eBays P/E-Ratio is much lower than the United States Online Retail Industry average of 30 and other tech companies. The reason is that eBay sales have until recently been declining by 1 to 3% per year.
I wouldn’t look into the P/B ratio. I consider P/B-Ratios (book value per share, which is essentially the equity per share) only a reasonable ratio for capital-intensive businesses such as railroads, real estate, etc.
For the tech industry with its intangible assets, this ratio isn’t the right approach.
Are The Market Estimations Correct in Your Opinion?
Do you use eBay nowadays more than 1 year ago?
eBay 2019’s revenue recorded roughly $ 10 billion, analysts expect it to grow to $ 12 billion in three years from now.
In terms of earnings, the estimations guide from 2019’s $2 billion income to §2.3 billion in 2023.
That means analysts expect eBay to grow slower than the average e-commerce market.
We have come to a point where things get interesting.
Ask yourself if you think eBay will grow faster or slower than the market.
Analysts’ estimates don’t reveal the future! A consensus estimate is a forecast of a public company’s projected earnings based on the combined estimates of all equity analysts that cover the stock.
“All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.” — Warren Buffett
Currently, eBay pays out $0.16 per share per quarter. This equals a pretty healthy payout ratio of 25% of the company’s earnings and only makes up to 40% of its cash flow.
Analysts expect the dividends to remain flat.
eBay has a lot of debt on his balance sheet.
Its debt to equity ratio increased from 0.4 to 2.9 which is extremely high although the company generates a strong cash flow.
However, its short-term assets are comfortably higher than its short-term liabilities and the debt is well covered by operating cash flow.
- In the recent 3 months, insiders have only bought 1,453 eBay shares, whereby insiders have sold 9,9 million shares!
eBay Inc. Common Stock (EBAY) Insider Activity
Find the latest Insider Activity data for eBay Inc. Common Stock (EBAY) at Nasdaq.com.
- eBay has been buying back a lot of shares, mainly from the $3 billion sale of Stubhub.
- Activist hedge fund Elliott Management bought a 1,4% share stake in eBay and entered at a share price of $28.
- eBays business model might be vulnerable to be disrupted by blockchain technology in the long run.
I think eBay isn’t going to be an amazing investment, but I think it’s a decent one.
My guess is eBay is going to outperform the Dow Jones and S&P 500, but not the NASDAQ.
I will start accumulating the shares at a discount of 30% to the fair value, which is at roughly $40.
The most important question is, whether you agree with the analysts on the future growth. Do you believe eBay grows faster than the global E-commerce market or not? Do you believe in the CEO and its vision?
It’s your turn!
Please let me know if you find this analysis useful and if you would consider eBay a buy.
Disclaimer: This article is not investment advice, but for analysis and informational purposes only. It should not be considered Financial Advice. Consult a financial professional before making any significant financial decisions.
I hope to see you again in the future.
Once you have found your desired company, you only need to calculate how much you want to invest. I recently wrote an article that might be useful for you: