Will eBay Continue To Catch A Bid?

With shares of eBay (NASDAQ:EBAY) trading around $53, 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 in online and mobile commerce and payments in the United States and internationally. Its marketplaces segment operates ecommerce platform eBay.com, vertical shopping sites. The company operates through three segments: Marketplaces, Payments, and GSI. Ultimately, through its tools and platforms, EBay assists individuals and small, medium and merchants around the globe engage in online and mobile commerce and payments. As commerce moves online at an increasing rate, companies like eBay are poised to see rising profits.

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T = Technicals on the Stock Chart are Mixed

Ebay stock has seen a strong bid in its stock that has propelled it to higher prices. The stock is now consolidating near all-time high prices and may rest here before heading higher. 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 around its tangled 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

33.07%

86%

84%

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

July Options

Flat

Average

August 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?

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2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

15.91%

-62.10%

21.62%

140.9%

Revenue Growth (Y-O-Y)

14.37%

18.14%

14.77%

23.12%

Earnings Reaction

-5.84%

2.4%

5.45%

8.62%

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

P = Poor 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

4.36%

12.27%

88.68%

49.62%

7.31%

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

Conclusion

Ebay has been a pioneer in the internet commerce space and provides consumers and businesses a way to efficiently connect and transact. The stock has witnessed a strong run in recent years which has taken it to near all-time high prices. Over the last four quarters, earnings and revenue figures have been on the rise which has kept investors mostly pleased. Relative to its peers and sector, eBay has been a poor performer year-to-date. WAIT AND SEE what eBay does this coming quarter.

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