eBay (EBAY 0.04%) is one of the pioneers of e-commerce. It's easy to forget that for several years eBay controlled a more significant share of the online sales market than Amazon. Of course, everyone knows Amazon has exploded since then, but eBay has been a formidable force for nearly two decades. 

The company is mature enough that it even started paying a dividend in 2019. eBay is in certain ways a lower-risk stock that exposes investors to the growth of the e-commerce industry. Let's look at its performance, weigh that against its valuation, and answer if investors should buy eBay's stock right now. 

eBay has room to expand profits 

The primary reason why investing in eBay is less risky than Amazon is because eBay runs an asset-light business model. Amazon has spent billions of dollars building its fulfillment centers and logistics infrastructure. Further, Amazon owns many of the products sold on its platform. As Amazon grows more prominent, it requires more significant capital investment to enable its expansion. 

In stark contrast, eBay does not own any of the inventory on its platform. Moreover, it leaves shipping and handling to settle between buyers and sellers. That way, eBay relieves itself from the massive capital investments in fulfillment centers. Instead, eBay invests in its platform, where it brings buyers and sellers together to transact. eBay takes a percentage of those transactions as revenue. That has undoubtedly helped eBay grow earnings per share (EPS) at a compound annual rate of 23.6% in the last decade.

EBAY Inventories (Quarterly) Chart

EBAY Inventories (Quarterly) data by YCharts.

eBay participated in the boom of online shopping during the pandemic. Its revenue grew by 19.7% in 2020 and 17.2% in 2021. The company will, likewise, experience the headwinds from economies reopening, giving consumers more options on where to spend their money. Still, many shoppers who joined eBay during the pandemic will stick around long term.

Moreover, eBay made a few changes to the business, enhancing its monetization of transactions. eBay's take rate, which measures the percentage of gross merchandise sales it takes as revenue, increased from 10% to 12.1% from the fourth quarter of 2020 to Q1 2022. That means eBay will capture a more significant percentage of sales on its platform.

There is reason to believe that eBay's increase in take rate will not repel buyers and sellers. Rival Etsy, which runs a similar business model, has a take rate of 17.8%. Etsy's rate suggests eBay may have room to expand its take rate over time.

eBay's valuation makes it less risky than rivals

EBAY PS Ratio Chart

EBAY PS Ratio data by YCharts.

Another element that makes eBay less risky than its e-commerce rivals is its more favorable valuation. eBay ranks lowest overall when measured by a combination of the price-to-sales, price-to-earnings, and price-to-free-cash-flow metrics (see chart above). 

eBay is an excellent business that has proven itself over decades and now sells at a favorable valuation. For these reasons, it can be a wonderful time to buy eBay stock.