eBay, Inc. (EBAY) is widely known as a popular auction site for many types of goods, collectibles and even cars. However, the company also owns one of the world's most popular payment services, Paypal, Inc. That makes eBay a dominant player in both online auctions and online payments. eBay shares are in an uptrend and the stock has recently been making new 52-week highs. That trend is likely to continue in 2012. Here are 4 reasons why investors should consider eBay shares, (particularly on pullbacks) as the stock could continue making new 52-week highs through 2012:
1. eBay has a very strong balance sheet with about $5.87 billion in cash and around $2 billion in debt. This will allow the company to pursue new opportunities and fund existing areas of growth such as the rapidly emerging "mobile wallet" market. More consumers are expected to use their mobile phones as wallets and make payments at stores. Paypal is well-positioned to capitalize on this in the future.
2. eBay shares are very reasonably valued, especially when you compare it to other online giants like Amazon.com (AMZN). eBay sells for about 17 times earnings and Amazon.com sells for a mind-blowing figure of about 194 times earnings. Also, keep in mind that the profit margins in online retailing are very thin. Plus, some investors fear that Amazon.com will lose part of its edge if it is forced to charge sales taxes on more consumers in the future. eBay has a business that has solid profit margins and growth potential and yet it trades for a much more reasonable valuation.
3. Paypal could be a potential spin-off candidate for eBay at some point in the future. While the auction business might not receive a rich valuation in terms of price to earnings multiple, Paypal could receive a very generous valuation based on current earnings and growth prospects for the mobile wallet and online payments. An initial public offering of Paypal would probably be very well-received by the markets and it could unlock additional value for shareholders.
4. eBay recently reported strong earnings that beat expectations. Revenues surged 29% to $3.28 billion, from just $2.55 billion last year. This resulted in earnings per share of 55 cents, which compares favorably with just 47 cents per share last year. Strong earnings growth can often lead to multiple expansion with the price to earnings ratio, and this could help take the stock higher. UBS recently gave eBay shares a buy rating and gave the stock a $47 price target.
Key Data Points For eBay From Yahoo Finance:
Current Share Price: $40.75
52-Week Range: $26.86 to $41.96
Dividend: none
2012 Earnings Estimate: $2.35 per share
2013 Earnings Estimate: $2.72 per share
P/E Ratio: about 17 times earnings
Key Data Points For Amazon.com From Yahoo Finance:
Current Share Price: $230.04
52-Week Range: $166.97 to $246.71
Dividend: none
2012 Earnings Estimate: $1.18 per share
2013 Earnings Estimate: $2.58 per share
P/E Ratio: about 194 times earnings
Data is sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
