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.
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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.
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