Does eBay Still Have Room to Run?

With shares of eBay Inc. (NASDAQ:EBAY) trading at around $53.18, is EBAY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The big news for eBay is that PayPal partnered with NCR Corp (NYSE:NCR). This will allow PayPal to make a smooth and highly effective expansion into the physical world via ATMs. In the very near future, PayPal will be accessible in 38 percent of all major restaurant chains, and in 50 percent of all major retail chains. This should lead to a substantial increase in revenue.

At the present time, there is a lot of optimism surrounding eBay. Actually, this is one of those situations where a company is well run, but the optimism gets so high that expectations are difficult to meet. For example, several investment banks have raised their price targets on eBay over the past two weeks. Canaccord Genuity raised its price target from $50 to $56. Evercore Partners raised its price target from $53 to $60. Credit Suisse was a lot more conservative, raising its price target from $49 to $50. The reasons given for price target increases included expansion in the Marketplace, rapid growth in PayPal, as well as improved transaction values and user engagement.

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eBay has a history of solid stock performance after earnings reports/conference calls. History does tend to repeat itself, but there are a few dangers here. One, as stated earlier, optimism is too high – there is nowhere to go but down. Two, eBay’s Forward P/E is 19.41. Three, you should never trade heading into earnings. If you have a long-term investment in eBay, then that’s a different story. It should be understood that a 6 to 8 percent swing in either direction is possible.

Let’s take a look at some important numbers for eBay.