Should You Take a Chance With eBay?

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.

Though activist investor Carl Icahn’s proposal will no longer be presented to shareholders at eBay’s annual meeting next month, Icahn hasn’t completely backed down on his idea of eBay selling off its payments business. ”I continue to believe that eBay would benefit from the separation of PayPal at some point in the near future and intend to continue to press my case through confidential discussions with the company,” Icahn said in his statement about his deal with eBay. In return for Icahn’s agreement to drop the proposal to shareholders and withdraw his two nominees to the company’s board, eBay agreed to appoint to David Dorman, founding partner of venture capital firm Centerview Capital Technology, to the board.

T = Technicals on the Stock Chart are Mixed

Ebay stock has struggled to make significant progress over the last couple of months. The stock is currently pulling back and may need time to consolidate. 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 between its rising key averages which signal neutral 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

34.53%

96%

94%

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

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral 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), Mercadolibre (NASDAQ:MELI), and sector?

Ebay

Amazon

Overstock

Mercadolibre

Sector

Year-to-Date Return

-0.28%

-19.30%

-40.30%

-17.50%

-18.34%

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. Icahn hasn’t completely backed down on his idea of eBay selling off its payments business. The stock has struggled to make significant progress and is currently pulling back. 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.

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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