eBay Just Can't Get a Bid

03/19/2009 11:02 am EST


Jocelynn Drake

Financial Analyst, Schaeffer's Investment Research

Jocellyn Drake of Schaeffer's Research says the once-high-flying online auction company has become a weak performer, with little prospects for a turnaround.

The author of a recent Fortune article ("Uninspired by eBay") ponders the weakness of auctioneer giant eBay (Nasdaq: EBAY). The stock has faded into obscurity, partly because "no one cares anymore about eBay's original business, the online auction."

Furthermore, the author, Michael V. Copeland, opines, "Part of the problem is no one is spending money on furniture or anything at the moment, but compounding the issue for eBay is that a lot of people just aren't hassling with auctions anymore." During the fourth quarter, the total of all successfully closed listings on eBay's auction platform was down 26% year over year.

The author also comments that the company's "format problem" is weighing on the security, pulling down the "rest of what are pretty solid businesses that eBay owns, chiefly online payments service PayPal and Internet calling company Skype." Both PayPal and Skype represent diamonds in the rough for the firm, as the two companies are currently showing growth.

In addition, [Copeland says] that EBAY is a cheap stock, with a forward P/E of about eight [times 2009 earnings at Wednesday's closing price above $12—Editor]. In fact, eBay has been a "value" stock seemingly since 2007, when it was trading at a then relatively thrifty 15x earnings. "It is cheaper today, but it is likely to be a long wait before any upside appears," [Copeland writes].

The dour tone of the article matches the stock's technical performance. The security has drifted nearly 13% lower since the start of 2009. What's more, the equity has been in a steep down trend since its December 2004 peak of $59.21, resulting in a loss of more than 80%. With resistance in the form of its ten- and 20-week moving averages keeping the shares capped, it's likely the stock is going to continue its down trend in the near term.

Despite the security's lackluster performance, we continue to see signs of optimism toward the shares. Short sellers have not jumped on the stock, as only 3% of the company's total float has been sold short. What's more, the International Securities Exchange and the Chicago Board Options Exchange (CBOE) have reported an increase in call trading. The 10-day ISE/CBOE call/put ratio [recently came] in at 2.64, as call volume more than doubled put volume.

Meanwhile, only three of the 24 analyst ratings on EBAY come in at a "Sell." There is still ample room for pessimism to grow before it reaches extreme levels.

Subscribe to the Option Advisor here.

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS