Can eBay Continue to Move Higher?

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.

Ebay CEO John Donahoe said digital-payment provider PayPal is stronger as a unit of the online marketplace, as both benefit from the convergence of commerce and payments. ”We look at how eBay and PayPal can be most successful,” Donahoe said Tuesday in an interview on Bloomberg Television. “I continue to believe the best way is together — that eBay makes PayPal stronger. And it makes PayPal stronger by helping it grow faster. It provides more data and it provides a strong financial foundation that will ultimately make PayPal more successful as part of eBay than separate.”

EBay last month said that activist investor Carl Icahn had proposed spinning off PayPal and was nominating two of his employees to join the board. In an interview on Bloomberg Television at the time, Icahn said eBay “hasn’t done as well as it should have” and called a separation of PayPal — which is one of eBay’s faster-growing businesses — a “no-brainer” that would boost value. on Wednesday, Donahoe said San Jose, California-based eBay isn’t working “at odds” with Icahn.

T = Technicals on the Stock Chart Are Strong

Ebay stock has seen positive progress in recent years. The stock is currently surging higher and looks set to continue this path. 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 signals 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

24.79%

6%

3%

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

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of Wednesday, there is 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 small 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

14.32%

16.36%

-7.55%

15.91%

Revenue Growth (Y-O-Y)

13.45%

14.34%

14.1%

14.37%

Earnings Reaction

0.97%

-3.99%

-6.72%

-5.84%

Ebay has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with eBay’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

eBay

Amazon

Overstock

Mercadolibre

Sector

Year-to-Date Return

0.39%

-12.8%

-39.2%

-13.1%

-7.5%

Ebay has been a relative performance leader, year-to-date.

Conclusion

Ebay is an established company that has made a name for itself pioneering internet commerce. The company’s CEO said digital-payment provider PayPal is stronger as a unit of the online marketplace, as both benefit from the convergence of commerce and payments. The stock has moved higher in recent years and looks set to continue this path. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, eBay has been a relative year-to-date performance leader. Look for eBay to OUTPERFORM.

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