eBay Inc. (NASDAQ:EBAY) was on a fine run in 2020, as the stock nearly doubled as investors focus shifted towards e-commerce stocks. With the upward momentum still in play, the stock continues to edge higher at the back of solid underlying fundamentals.
Solid Fundamentals
One of the factors driving the stock higher is market-leading profit performance that has once again affirmed eBay ability to generate value in the highly competitive e-commerce landscape. Sales soared the past year to record highs helped by strong online sales that allowed the company to maintain its transaction fee levels.
In addition, the asset-light selling approach allowed the e-commerce heavyweight to convert a huge percentage of revenue into free cash flow as profitability climbed above 25% sales. Cash returns to shareholders to a tune of $800 million, in the form of stock buybacks and dividend payments all but helped strengthen investors sentiments in the stock conversely fuelling a rally in the market.
Earnings Expectations
As the company prepares to report its full-year 2020 financial results, organic sales are expected to post a 20% growth. Likewise, Wall Street expects the e-commerce giant to post earnings per share of $0.84, representing a 3.7% year-over-year growth. Revenue, on the other hand, is expected at $2.71 billion against $2.6 billion reported in the third quarter. eBay is also expected to report free cash flows of $2.3 billion above $2 billion before COVID-19 struck
Compared to other e-commerce players, eBay is fairly valued, given its price to earnings ratio of 15.38 compared to 72.89 for Amazon. Likewise, the company looks to be trading at a great discount relative to industry standards.
Chief Executive Officer Jamie Iannone has sought to slim down eBay in a bid lure customers and get them to spend more on the site. Similarly, the company has embarked on a divestment streak which has resulted in the sell-off of events ticket marketplace StubHub and classified business.