Amazon's (AMZN) first-quarter earnings miss and weaker-than-expected second quarter guidance, reported on Thursday after market close, could make for an interesting opportunity in another retailer.
I'm specifically looking at eBay (EBAY) . When I wrote this, hours prior to the market open, AMZN shares were down about 8.5%, and eBay's were down 2 bucks in pre-market trading. The latter online retailer has had a rough start to 2022, down 20%. While I do have some misgivings about the seemingly low forward price-to-earnings ratios of a whole host of retailers, primarily specialty and apparel, I believe EBAY is on a different level. Where else can you buy a replacement hubcap, 1988 Fender Telecaster, chainsaw, original 1977 Seattle Mariners game used jersey, and Cleveland Indians stock certificate -- to name a few items that I've actually purchased over the years -- on the same site? It's one of the few sites that I'm on every day, looking for the latest treasure, or run-of-the-mill household, or electronic, good.
The days of trading at relatively high multiples of earnings are long gone. Shares currently trade at about 12-times trailing earnings, 1-times 2023 consensus estimates, and 10-times 2024 estimates. Somehow EBAY has left growth stock mode, and is in value land.
The balance sheet is decent; the company ended 2021 with $9 billion in cash and investments ($1.7 billion of which is long-term corporate and government/agency securities). In addition, the company owns 33% of Norway's Adevinta (ADEVF) , a stake that was acquired in exchange for eBay's classified ad business, in a $9.2 billion cash and stock deal, and was carried on the year-end balance sheet at $5.4 billion. EBAY ended the year with $9.1 billion in debt.
EBAY has also been a serial share repurchaser, and shares outstanding have been nearly cut in half in the past 6 years. The current buyback authorization, put in place in February, is for $4 billion. At the current price, that would be good for about 74 million shares.
The current 22 cent dividend equates to a 1.6% yield. Initiated in 2019, the dividend has grown at a 16% compound annual growth rate. The combination of growing dividends, and stock buybacks can be powerful, if done right.
But I am not in a hurry to take a position here. The valuation, however intriguing, comes at a time where we could be headed for a recession and yesterday's Gross Domestic Product print of a 1.4% contraction might begin to tell the tale, and I think it is possible that we are already there.
I will be looking for a more attractive entry point (or points), if presented.
