In online auctions, eBay (EBAY) has a stranglehold on the market. The company has managed to stay ahead of its competitors.
When it comes to buying online, eBay and Amazon (AMZN) are the two big brand names that come to mind. Over the past few years, eBay shares have been performing at around par with the Nasdaq. In this article, I explain why eBay is currently undervalued.
eBay is currently expected to grow earnings by 12.8 percent in 2012 and 13.1 percent in 2013. From a P/E valuation standpoint, I believe that eBay's stock should trade at around $42, which is over 11 percent higher than its price of $37.79 at the close of trading on March 20th.
But eBay is an attractive buy for much more than its earnings potential. eBay's brand and business model give the company a lot of upside potential. This can be seen when comparing it to Amazon. eBay makes the majority of its revenue from consumer-to-consumer online auctions, but is trying to break into online retailing. Amazon makes the majority of its revenue from online retailing, but is making a strong effort to promote consumer-to-consumer business.
In theory, eBay's and Amazon's will eventually move closer to each other, and both companies try to grow more in the world of e-commerce. Looking at their valuations, Amazon is almost unanimously expected to grow faster than eBay as the stock trades at over 135 times earnings, while eBay's P/E ratio hovers around the market average.
I believe that Amazon will grow faster than eBay over the next few years because of its expansion into the tech world with the Kindle, but eBay's attempts to grow should beat expectations and boost stock price in the near future.