Is this one of the best value stocks in the market right now?

This value stock has a low valuation, a rising dividend, and huge share buybacks and Edward Sheldon believes it’s worth a closer look.

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One value stock that’s caught my eye recently is eBay (NASDAQ: EBAY). It’s having a fantastic run in 2024, but still looks dirt cheap.

Could it be one of the best value stocks in the market today? Let’s take a look.

A great online shopping platform

eBay’s a company I know pretty well as I’ve been a user of the online shopping platform for over 20 years now. I’m a big fan – not only have I bought loads of gear on it over the last two decades but I’ve also sold a ton of stuff I don’t need.

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I just wish I’d invested in the company at some stage. Had I done so a decade ago, I’d have nearly tripled my money as the share price has risen from $22 to $63 over the period.

Created with Highcharts 11.4.3eBay PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

It may not be too late to get in here however. As I mentioned earlier, the stock looks cheap right now. With Wall Street analysts forecasting earnings per share of $5.17 next year, the forward-looking price-to-earnings (P/E) ratio here is just 12.2.

Value on offer today

That strikes me as a low valuation. Granted, this isn’t the growth company it was two decades ago. Right now, revenue’s only growing by a few percent a year. But this company’s quite a lot going for it from an investment perspective, to my mind.

For a start, it’s buying back a ton of shares. Over the five-year period to the end of 2023, its buyback yield was a staggering 14.1% (buyback yield’s calculated by dividing net buybacks by beginning market capitalisation). This buyback activity should boost earnings per share which, in turn, should boost the share price over time.

It’s also increasing its dividend at a rapid rate. Over the last three years, the payout’s climbed from 64 cents per share to $1 per share (a growth of 56%). Currently, the yield’s about 1.7%. But it could be a lot higher in the years ahead if the company keeps increasing its payout. It’s worth noting that the dividend coverage ratio (earnings per share divided by dividends per share) is very high at around four. So there’s plenty of scope for dividend growth.

One other thing to like here is the return on capital employed (ROCE). It’s quite high at around 13%. This means the company’s effective at generating profits. Companies with a high ROCE often turn out to be good long-term investments.

A top value stock

In terms of the bear case, one risk is competition from other online retailers. Today, eBay’s facing intense competition from both Chinese online shopping companies like Temu and new e-commerce players such as clothing resale platform Vinted.

This is definitely an issue to keep an eye on. The good news here is that eBay has quite a powerful brand – hopefully this will help it maintain market share.

Overall though, I believe there’s a lot to like about this stock and I think value investors should consider buying it. I think it could be one of the best value stocks in the market today.

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Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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