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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the eBay Inc. (NASDAQ:EBAY) share price is up 63% in the last five years, that's less than the market return. On a brighter note, more newer shareholders are probably rather content with the 33% share price gain over twelve months.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the five years of share price growth, eBay moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that eBay has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at eBay's financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of eBay, it has a TSR of 77% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that eBay shareholders have received a total shareholder return of 35% over one year. Of course, that includes the dividend. That's better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - eBay has 1 warning sign we think you should be aware of.