eBay Inc (EBAY), Amazon.com, Inc. (AMZN): Explosion in Online Commerce Will Lift This Stock to New Highs

Shareholder return

Besides the enormous growth opportunity in front of eBay, investors should also get excited about the company’s recapitalization efforts. Over the last few years, eBay has been taking on additional debt. Too much debt can be extremely risky, but eBay was — and still is — inefficiently capitalized. As a result, the company can continue to borrow money and invest in growth that will ultimately pay off for shareholders.

The stock trades at a 5% yield of normal free cash flow based on applying its historical free cash margin to its current sales level. In other words, in a normal year, eBay’s current assets will produce free cash flow equal to 5% of the current market capitalization.

However, eBay is growing at a double-digit pace — 13% annualized since 2008. If it can grow at just 5% per year, shareholders will get a double-digit return on their investment. If it can grow faster than that, investors will earn a lot more money.

The article Explosion in Online Commerce Will Lift This Stock to New Highs originally appeared on Fool.com and is written by Ted Cooper.

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