What Makes eBay Special?

With shares of eBay Inc. (NASDAQ:EBAY) trading at around $55.33, 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

EBay has a strong history of beating expectations, but that’s not what makes it special. Analysts love the stock: 30 Buy, 9 Hold, 0 Sell, but that’s not what makes it special, either. What makes it special is PayPal.

It’s amazing when you stop and think about. Think of all the acquisitions throughout the broader market over the years. What percentage of those acquisitions ended up working out? It’s likely a small percentage — and definitely well under 50 percent. There were many questions when eBay acquired PayPal, but there aren’t many questions now. PayPal’s potential is phenomenal. Consider that PayPal was responsible for 15 percent of all e-commerce transactions in 2012. Online spending is only going to increase as the years pass. Therefore, PayPal is extremely well-positioned. And this potential is global, not just domestic. eBay is looking to market PayPal globally through mobile. It’s especially going after Brazil, Russia, India, and China. It should also be noted that eBay is taking a slow and steady approach with PayPal opposed to getting ahead of itself. This is a good sign.

As far as company culture goes, it’s not as strong as one would think, considering such strong and consistent results. According to Glassdoor.com, employees have rated their employer a 3.1 of 5. This is slightly above average, but only 52 percent of employees would recommend the company to a friend. And only 51 percent of employees approve of CEO John. J. Donahoe.

EBay’s last quarter revenue increased 14 percent year-over-year. Guidance for the current quarter is weak, but this could be a sandbagging approach.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

The chart below compares fundamentals for eBay, Amazon.com Inc. (NASDAQ:AMZN), Overstock.com (NASDAQ:OSTK).

EBAY AMZN OSTK
Trailing P/E 26.93 N/A 32.41
Forward P/E 17.23 81.89 20.16
Profit Margin 18.68% -0.14% 1.71%
ROE 13.64% -1.11% 72.33%
Operating Cash Flow 4.24B 4.25B 48.73M
Dividend Yield N/A N/A N/A
Short Position 1.00% 1.70% 34.10%

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

T = Technicals Are Strong

EBay hasn’t performed well over the past month, but it has outperformed its peers over a three-year time frame.

1 Month Year-To-Date 1 Year 3 Year
EBAY -3.25% 8.73% 36.11% 144.5%
AMZN -2.03% 6.56% 17.41% 103.3%
OSTK 108.9% 86.30% 283.6% 13.59%

At $55.33, eBay is trading above its averages.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!
50-Day SMA 54.38
200-Day SMA 52.94

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for eBay is stronger than the industry average of 0.30.

Debt-To-Equity Cash Long-Term Debt
EBAY 0.21 9.40B 4.52B
AMZN 0.36 7.90B 3.04B
OSTK 0.00 81.89M 0.00

 

E = Earnings Have Been Steady

Earnings haven’t shown impressive growth over the past several years, but they have been steady. Revenue growth has been very impressive. This trend is likely to continue.

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in billions 8.54 8.73 9.16 11.65 14.07
Diluted EPS ($) 1.36 1.83 1.36 2.46 1.99

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings.

Quarter Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012 Mar. 31, 2013
Revenue ($) in billions 3.28 3.40 3.40 3.99 3.75
Diluted EPS ($) 0.44 0.53 0.45 0.5686 0.51

 

T = Trends Support the Industry

The e-commerce market is expected to grow exponentially in the coming years, which has a lot to do with the increased popularity of smartphones and tablets.

NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!

Conclusion

EBay has strong revenue growth, healthy margins, good cash flow, quality debt management, and tremendous potential with PayPal.

EBay is still an 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.

All content posted should never be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions.

More Articles About:   , , ,  

More from The Cheat Sheet