Is eBay (EBAY) Stock a Buy For 2021?

Alex Smith
·4 min read

Steel City Capital recently released its Q4 2020 Investor Letter, a copy of which you can download here. In 2020, the fund returned 10% net of fees, while the S&P 500 Index was up 16.3%. You should check out Steel City Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of 2021.

In the Q4 2020 Investor Letter, Steel City Capital highlighted a few stocks and eBay Inc (NASDAQ:EBAY) is one of them. eBay Inc (NASDAQ:EBAY) is an e-commerce company. In the last three months, eBay Inc (NASDAQ:EBAY) stock gained 6.3% and on January 20th it had a closing price of $56.17. Here is what Steel City Capital said:

"eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.

In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.

EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp."

Steel City Capital has been a long time eBay Inc (NASDAQ:EBAY) bull. In April 2020, we shared Steel City Capital’s bullish EBAY's thesis in this article.

In Q3 2020, the number of bullish hedge fund positions on eBay Inc (NASDAQ:EBAY) stock decreased by about 14% from the previous quarter (see the chart here), so a number of other hedge fund managers don't believe in EBAY's growth potential. Our calculations showed that eBay Inc (NASDAQ:EBAY) isn't ranked among the 30 most popular stocks among hedge funds.

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Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.