I am sure the owners of eBay's (NASDAQ:EBAY) stock are celebrating today (Wednesday). Revenues for the internet marketplace grew 29% to $3.3 billion. Earnings also grew on a non-GAAP basis 18% to $0.55. This beat expectations, and sent the stock up as much as 14% in response to the report. Many investors in eBay are now stuck wondering what they should do from here.
In many ways the answer depends on why you decided to buy shares in the first place. It is like someone who is driving on the interstate trying to decide which exit to take. They have a couple of choices they could make. They could be spontaneous and get off at any random exit and see where it takes them (that wouldn't be very wise), or they could think back to why they got on the interstate in the first place. In the same way, investors need to have a clear mind and think back to what made them decide to pull the trigger and jump on "interstate eBay".
If you got in because of a belief that this quarterly report was going to be strong, it is time to get off at this exit!
Before the quarter's report, I was encouraging people to take a look at eBay's expectations and its earnings/revenue track record. I wrote that eBay was the best play going into this week's earnings. I saw a consistent growth over the last couple quarters in the revenue column as it made its way over the $3 billion revenue milestone, and felt that the consensus estimate of $0.52 was too low for this quarter. If you read that article and saw the same thing, then it is time to celebrate your 14% win and cash in that lottery ticket for the profits.
Jim Cramer from MSNBC's Mad Money and thestreet.com has a rule: "Never turn a trade into an investment." In other words, if your plan was to use a specific catalyst that you felt would drive the price higher, once that catalyst passes then your reason for owning the stock has passed and it is time to sell.
I feel that this is great advice, and I have a feeling that this gain is going to pull back soon. If you feel like eBay may be a long-term investment, my suggestion is to cash out now and do some research from the sidelines. From this position, you will be able to take your time without being emotionally invested in the stock. If you do some research and find that eBay and PayPal have some long-term prospects for growth, then you can begin to search for an entry point where the new catalyst is long-term growth instead of the short-term.
If you got in because you felt that eBay and PayPal had solid potential for the future, then you should stay on for the ride.
Jim Cramer also says, "Never turn an investment into a trade." In other words, if you bought for the long-term prospects of PayPal's growth, the strength of the auction site, growth of revenue, and the future of the physical POS systems, then the report of the quarter is actually a confirmation of your premise and your reason for holding the stock is still intact.
As mentioned earlier, I believe the stock will have a minor pullback in the near future, so it might not be a bad idea to secure some of your gains and reinvest when the stock pulls back to a lower level. There is a lot of momentum pulling the stock up and once the dust settles, you should be able to increase your position at that point.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.