Yahoo Finance eBay (NASDAQ:EBAY) delivers shareholders respectable 15% CAGR over 3 years, surging 5.4% in the last week alone
By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, eBay Inc. (NASDAQ:EBAY) shareholders have seen the share price rise 46% over three years, well in excess of the market return (24%, not including dividends).
Since it's been a strong week for eBay shareholders, let's have a look at trend of the longer term fundamentals.
Check out our latest analysis for eBay
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over the last three years, eBay failed to grow earnings per share, which fell 75% (annualized). This was, in part, due to extraordinary items impacting earning in the last twelve months.
So we doubt that the market is looking to EPS for its main judge of the company's value. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The modest 1.8% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 8.4% per year is viewed as evidence that eBay is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
eBay is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for eBay in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of eBay, it has a TSR of 53% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that eBay shareholders are down 13% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 8.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand eBay better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for eBay you should be aware of.
But note: eBay may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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