Is eBay a Buy at These Prices?

With shares of eBay (NASDAQ:EBAY) trading around $54, 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:

T = Trends for a Stock’s Movement

Ebay provides online platforms, tools, and services to help individuals and merchants with online and mobile commerce in the U.S. and around the world. Its marketplaces segment operates e-commerce platform eBay.com, and vertical shopping sites. The company operates through three segments: Marketplaces, Payments, and GSI. Ultimately, through its tools and platforms, eBay assists individuals and merchants around the globe engage in online and mobile commerce.

In the last few weeks, eBay delivered a profit, but missed Wall Street’s expectations for revenue. The revenue miss is a negative sign to shareholders seeking high growth from the company. Despite the recent hiccup, commerce continues to move online at an increasing rate, and companies like eBay are poised to see rising profits.

T = Technicals on the Stock Chart Are Strong

Ebay stock has been moving higher in recent years. However, the stock has tried a few times to test all-time high prices and continues to back-off from these key price levels. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, eBay is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

EBAY

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of eBay options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

eBay Options

32.52%

76%

75%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on eBay’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for eBay look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-7.55%

15.91%

-62.10%

21.62%

Revenue Growth (Y-O-Y)

14.10%

14.37%

18.14%

14.77%

Earnings Reaction

-6.72%

-5.84%

2.40%

5.45%

Ebay has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about eBay’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has eBay stock done relative to its peers, Amazon (NASDAQ:AMZN), Overstock (NASDAQ:OSTK), Mercadolibre (NASDAQ:MELI), and sector?

eBay

Amazon

Overstock

Mercadolibre

Sector

Year-to-Date Return

6.85%

24.40%

99.16%

64.37%

39.83%

Ebay has been a poor relative performer, year-to-date.

Conclusion

Ebay is an established company that has made a name for itself pioneering internet commerce. The company recently issued an earnings report that didn’t impress the markets. The stock has tested all-time high prices a few times in the last several months but has backed-off every time. Over the last four quarters, earnings have been mixed while revenues have risen, which has produced mixed feelings about the company among investors. Relative to its peers and sector, eBay has been a weak year-to-date performer. WAIT AND SEE what eBay does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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