Source: eBay

eBay (NASDAQ:EBAY) has delivered lackluster returns for investors lately, as the stock is roughly flat over the last year. However, the past is only a prologue to the future, and eBay looks like a convenient alternative when comparing valuation and financial performance against other e-commerce giants such as (NASDAQ:AMZN) and Groupon (NASDAQ:GRPN). Is now the right time to place a bid for eBay stock?

eBay vs. Amazon and Groupon
Companies such as eBay, Amazon and Groupon have different business models with their own implications in terms of financial performance. While eBay is not growing as rapidly as Amazon or Groupon in e-commerce, the company is much more profitable. Besides, its PayPal payments division is clearly firing on all cylinders and generating extraordinary growth for investors in eBay.

eBay's e-commerce marketplace division is in the business of matching buyers and sellers of all kinds of products, making a commission for every transaction that takes place in the platform. Revenues in this segment increased 9% during the second quarter of 2014 to $2.2 billion. The marketplaces division ended the second quarter with 149 million active buyers, an annual increase of 14%.

Amazon is growing much faster than eBay in e-commerce, the company announced a total increase in sales of 23% during the second quarter, reaching $19.34 billion. Sales in the products division grew at an impressive 19.6% to $15.25 billion during the quarter.

In spite of this extraordinary growth, Amazon is losing money at the operating level, since the company charges razor-thin profit margins on product sales and is heavily investing in different areas to consolidate its leadership position in online retail.

Groupon is trying to transform its business, the company wants to become a full online marketplace as opposed to a simple daily deals site. Like Amazon, Groupon is generating attractive sales growth, revenues increased 23% to $751 million during the second quarter. However, EBITDA declined to $59 million versus $81 million in the same quarter of the prior year, as increased spending to accelerate growth is hurting profit margins.

Strong profitability
eBay, on the other hand, produces big fat profit margins above 35% in its marketplace division. The company may not be the fastest growing name in e-commerce, but it's much more profitable than rivals such as Amazon and Groupon.

In addition, PayPal is an amazing growth driver for eBay. Revenues in the payments division jumped 20% during the second quarter to $1.9 billion, and PayPal ended the period with 152.5 million active accounts, a 15% annual increase. Segment margin in the payments division is also quite healthy, in the area of 24.5%.

It's important to keep in mind that PayPal is becoming a huge business opportunity on its own merits for eBay, not just a payments system for customers to use in its e-commerce platform. Net total payment volume grew 29% during the last quarter, with merchant services volume increasing by an impressive 35% and on-eBay volume growing 13%. The way things are going, eBay is becoming a global digital payments business as much as an e-commerce company.

All in all, eBay delivered an increase of 13% in total revenues during the second quarter of 2014 to $4.4 billion. Operating margin came in at 18% of revenues, so the company is making healthy profits for each dollar in sales.

Attractive valuation
eBay is trading at a forward P/E ratio of 16.3 times earnings estimates for the coming year, this is lower than the average valuation for companies in the S&P 500 Index, with a forward P/E ratio of 17.5, according to data from Morningstar.

Considering that eBay is quite a profitable company with a solid competitive position in promising industries such as e-commerce and digital payments, a below-average valuation for eBay looks like a convenient price for investors.

Both Amazon and Groupon trade at considerably higher forward P/E ratios of 154 for Amazon and 37 for Groupon according to consensus estimates. Even under the optimistic assumption that these companies will be able to combine higher growth rates with increased profit margins in the years ahead, eBay looks attractively valued in comparison.

Key takeaway
eBay is not the fastest growing company in e-commerce, but it leaves competitors such as Amazon and Groupon in the dust when it comes to profitability. Besides, PayPal is a remarkably promising growth driver for eBay. When considering both current valuation and overall financial performance, it looks like it may be the right time to press the buy button for eBay stock.