Shopping List: eBay

I am preparing a shopping list in case the market has a sale in the next few weeks. One of the stocks I am looking at is eBay (symbol:EBAY). While I am concerned about owning a company that's earnings is dependent on consumer spending, I believe the valuation of the stock more than incorporates a negative consumer outlook. Analysts expect eBay to earn $1.94 next year. Including the over $3 a share in cash eBay holds the stock trades at 10 times next years earnings. If one considers the growth valuation Skype and PayPal should receive, the auction business trades at a single digit multiple.

I believe a certain part of eBay's business is vulnerable. There are people that are addicted to eBay just like there are people addicted to the Home Shopping Network. Those people will probably cut back in a bad environment. Additionally, a weaker economy will effect business and lower credit availability will not help, as many use credit cards to purchase on eBay. However, much of eBay's business comes from people trying to save money and many people might look to eBay in tough times as a way of selling some items they don't need to raise cash. Even if one assumes a recession-depression next year, and a 20% earnings miss, eBay still trades at 12 times trough earnings. That's something I could live with. I am not expecting eBay to earn $1.94 next year.

My only hesitation is that according to Barron's, Wedge Partners believes eBay will have an earnings miss this quarter. Wedge Partners is a research firm that does excellent work. If the earnings miss is coming now, I might consider waiting until after earnings. The jury is still out.

6 comments:

A-Nony Moose said...

Great blog.

What do you think about the golds here?

Tsachy Mishal said...

Thanks. I think we have deflation right now as money is created through debt and debt is being destroyed. In addition, leveraged speculators are deleveraging and gold is part of their holdings. That's why I think gold is down. It looks like it might be trying to put in a bottom shorter term.
The Bull case for gold is that the deflationary spiral gets out of control and the government would be left with no choice but to print money, which is hyper inflationary and would mean gold can really fly. Right now the government is acting tough by letting Lehman fail. I am not sure how many more times they can get away with something like that without bringing the system down. I think eventually a huge bailout will be necessary and that will probably be good for Gold but I want to see it begin before I put my money there, even if it means paying up.

Tsachy Mishal said...

The Fed bailed out AIG and is running out of money. The treasury just announced that they will be injecting funds into the Fed. Is this the beginning of money printing?

A-Nony Moose said...

"Is this the beginning of money printing?"

One can never be sure, of course, but I think it is. The golds sure seem to think so.

The key thing to recognize here, I think, is that the precious metals complex could dramatically outperform commodities, generally. For instance, if you compare gold and goldshare performance relative to oil and oil share performance during the 2000-2003 bear market, you'll see how well the golds did relative to the oils during the Fall 2000-Spring 2002 period.

I think the reason for this is that gold tends to outperform everything else when liquidity tightens (i.e., market bids begin to disappear; credit spreads start blowing out; etc.) and the Fed starts to print money (i.e., when "true" inflation occurs).

So, even as a deflationary panic sets in, the golds can explode higher.

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