Update on eBay

01/28/2005 12:00 am EST


Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

eBay, the well-known Internet auction firm, was recently clobbered following its latest quarterly results. Here, two leading advisors offer their varying views. Joe Sunderman sees more downside risk in the short-term, while Louis Navellier sees a potential long-term opportunity.

"eBay (EBAY NASDAQ) recently posted very strong earnings, but it was one penny below expectations," notes Louis Navellier, editor of Emerging Growth letter. "As a result, the stock got hammered, falling some $20. I think the market is obviously overreacting. The problem is that investors have became so accustomed to eBay beating Wall Street's expectations that no one thought they could miss anymore. I want you to know that I still like eBay, and I think it's an excellent stock. If you own it, keep holding on.

"If you're nervous about EBAY, let me remind you that the company had an outstanding quarter. eBay's sales results actually beat expectations, and profits jumped 43%. The company is aggressively expanding into foreign markets, especially China. EBAY also said it's going to split its shares 2-for-1 next month. This is a great company, so let's not panic. If you haven't had a chance to buy it, you'll have an excellent opportunity to buy eBay, once the hectic current trading activity slows down. eBay's stock averages about ten million shares traded a day. As I write this, volume is soaring over 60 million shares. I’d also point out that despite the drop, the share price is higher than it was during much of the summer."

Adds Joe Sunderman of Schaeffer's Investment Research , "After being featured bullishly on the cover of Fortune in October 2004, EBAY announced poorer-than-expected earnings, causing a severe drop in price. Despite this violent reaction, bullish bets were dominant the following session, as call open interest increased by 59,000 contracts compared to just 14,000 puts. Currently, eBay's Schaeffer's put/call open interest ratio stands at 0.61. This is lower than all the readings taken on the stock in the past 52 weeks. Additionally, the short-interest ratio for EBAY stands at 3.01, providing little fuel for any short-covering support. What's more, 55% of Wall Street analysts rate the stock a ‘buy’. Any change of heart from this sunny bunch could send the shares falling further. Technically, EBAY is currently poised to close the month below its ten-month moving average for the first time since September 2002. Traders should target a move to 73 with a stop-loss on a trade above 86."

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