Is eBay a Hot Stock?

With shares of eBay (NASDAQ:EBAY) trading around $58, 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.

After a week full of disses from new eBay investor Carl Icahn, board member Marc Andreessen has come forward to defend himself in an interview with the Wall Street Journal after letting CEO John Donahoe and founder Pierre Omidyar do it for him. Stubborn activist investor Icahn has called out eBay’s board and Andreessen in particular for “lapses in corporate governance” that he believes to be inexcusable. “We have found ourselves in many troubling situations over the years, but the complete disregard for accountability at eBay is the most blatant we have ever seen,” Icahn said in the first of three letters to eBay shareholders that he’s released this week.

Icahn has also picked on board member Scott Cook for his investments in companies that compete with PayPal and eBay. Icahn specifically accuses Andreessen of cheating eBay shareholders out of the $4 billion profit he made from the sale of Skype to Microsoft (NASDAQ:MSFT). Skype was originally owned by eBay, then sold to Andreessen’s venture capital firm, then sold again for a huge profit to Microsoft. Icahn thinks that eBay should have pursued a deal that would have been more beneficial to shareholders when it sold Skype, but eBay has claimed that it explored all possible options for the sale and picked the best one.

T = Technicals on the Stock Chart Are Strong

Ebay stock has seen positive progress in recent years. The stock is currently pulling back and may need time to consolidate 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 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

28.18%

83%

80%

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

April Options

Flat

Average

May 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 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

5.51%

-10.70%

-36.90%

-6.21%

-1.85%

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. After a week full of disses from new eBay investor Carl Icahn, board member Marc Andreessen has come forward to defend himself in an interview with the Wall Street Journal after letting CEO John Donahoe and founder Pierre Omidyar do it for him. The stock has moved higher in recent years, but 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.

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