Your Earnings Season Preview: eBay

| About: eBay Inc. (EBAY)

Past Performance: Over the past four years, eBay (NASDAQ:EBAY) has been a chronic "under promise and over deliver" company. eBay has not missed EPS expectations in a single quarter the last four years. A major driver for growth has been the mobile payment system PayPal, owned by eBay. First quarter EPS expectations have consistently grown by ten percent or more over the last four years. That type of growth is impressive during what is widely considered as one of the slowest consumer shopping quarters of the year.

Fundamentals: Currently, eBay trades with a P/E of 21.6, a Forward P/E of 18.7, a P/S of 4.70, and a PEG of 1.28. Compare those metrics to that of the consumer services sector and the S&P 500 average. The consumer services sector trades with a P/E of 21.3 and a Forward P/E of 25.5. Meanwhile, the S&P 500 is trading with a P/E of 20.5, and a Forward P/E of 17.7.

No matter how you look at those fundamentals, eBay looks overvalued at this point in time. The fundamentals show that the recent pullback from a 52-week high of $57.27 on February 1, 2013 was warranted. While eBay decidedly has an edge over retailers with less of an online presence for the consumers, such as Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT), EBAY simply can't compete with other online retailers that are a bit more product diversified like Amazon (NASDAQ:AMZN).

The Story: PayPal, PayPal, PayPal. It really is that simple. PayPal needs to continue to dominate the mobile payments market for eBay to warrant such overpriced fundamentals. Rumors surrounding the latest iPhone from Apple (NASDAQ:AAPL) have NFC technology being a major selling point of the phone. NFC technology has the potential to make the everyday wallet obsolete, allowing individuals to use their mobile devices such as phones and tablets to pay for items, check out a library book, or store their state IDs on their favorite mobile platforms.

EBAY would be directly impacted if NFC technology takes off like many analysts expect. PayPal could face stiff competition from NFC technology and possibly Facebook (NASDAQ:FB) if it ever branches out to develop its own payment system. Also, direct competitor Amazon is developing a cult following for the products it offers. Amazon's CEO has been quoted on numerous occasions stating that he wants to take over the tech world. That isn't exactly a person I want to bet against in the short term.

How To Play It: While eBay may be slightly overbought right now, the valuations on a fundamental basis confirm that opinion as well, past earnings releases show it could be a good short term play. eBay recently pulled back from a 52-week high of $57.27 to current levels of just $51.72 at the time this article was written. That pullback may represent an opportune time to get in the stock before earnings are released strictly as a short-term play. After earnings, I would be looking to sell the stock before a correction in price brings the fundamentals back in line (a Forward P/E less than the S&P 500, and a PEG closer to 0.90). My 52-week price target: $61.18.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may initiate a long position in eBay over the next 72 hours. Always consult with a registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.

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