Why eBay Belongs In Your Portfolio In 2012

| About: eBay Inc. (EBAY)

eBay (NASDAQ:EBAY) investors have been disappointed over the last five years. The stock is down some 25% from its highs of late 2007. I think the stock has finally dropped to a price level and valuation that should reward long suffering investors. It has some catalysts and recent momentum that should allow it to outperform the overall market in 2012.

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Momentum drivers for eBay:

  1. As you can see from the chart above, eBay is showing momentum and has solidly outperformed the market over the last three months.
  2. The company is trialing a payment service at Home Depot (NYSE:HD). Wedbush believes if adopted company wide, it could increase PayPal’s market by 35%.
  3. Even though PayPal lost its CEO to Yahoo (NASDAQ:YHOO), it is still is the fastest growing part of EBAY and that growth should continue. It is now doing daily deals competing directly against Groupon (NASDAQ:GRPN).

Key value observations on EBAY:

  • Even after its recent run, the stock still sells in the bottom third of its five year valuation range based on P/E, P/B and P/CF.
  • Credit Suisse has an “outperform” rating on EBAY and a price target of $40 a share on the stock.
  • The company is showing consistent EPS growth. It made $1.73 per share in FY2010, should make $2.00 in FY2011 and analysts expect $2.32 in earnings in FY2012.
  • The company has beat earnings estimates for six straight quarters and a forward PE of just over 13 which is a 20% discount to its five year average.

Disclosure: I am long EBAY.