eBay’s up 60%, Time to Sell?
After gaining 60% from the low of $26.34 on March 23, we believe eBay’s stock (NASDAQ:EBAY) has limited upside potential at the current level of around $42. Why is that? The company’s stock is at a 52-week high and is only 5% shy of its all-time high in April 2018. Our dashboard ‘What Factors Drove 52.6% Change In eBay’s Stock Between 2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.
eBay’s stock is up roughly 53% since the end of 2018 despite its EPS shrinking 19% in 2019 – something that can be attributed to a one-time gain from the sale of equity investment in 2018. Although the net income margin fell from 23.5% to 16.5%, there was a slight increase in the Operating Margin thanks to a minor increase in eBay’s revenues from 2018 to 2019. The overall improving operating performance of the company resulted in eBay’s P/E multiple growing from 10.7x at the end of 2018 to 17.1x at the end of 2019. The rise in P/E multiple was because the market had higher expectations of future profits. The multiple has further increased to 20x now, which reflects an 87.4% increase from 2018 to May 2020. The increase in P/E multiple in 2020 is due to the impact of coronavirus, which we explain below.
Effect of Coronavirus
The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This has shifted the consumers to online shopping for essentials as they reduce human contact. eBay’s stock is up by about 25% since January 31, after the World Health Organization (WHO) declared a global health emergency in light of the spread of coronavirus. However, during the same period, the S&P 500 index saw a decline of about 11%. Despite the positive sentiment, the company saw a fall in revenue for Q1 2020.
We believe eBay will report better-than-expected results for Q2 2020, and it will raise its guidance for FY’20. Despite the positive outlook for its operating performance, the company’s stock has a limited upside. With a 25% rise in its stock price since January 31, 2020, eBay has outperformed the S&P 500 (-11%). In the current scenario, we believe eBay’s stock is likely to remain around its current levels, with a limited upside post coronavirus.
View our dashboard analysis Coronavirus Trends Across Countries, And What It Means For The U.S. for the current rate of coronavirus spread in the U.S. and forecasts on where it could be headed, based on comparison with other countries. Our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture of historic crashes and how the sell-off during early March compares.
eBay is growing in these uncertain times, but its peer Amazon is growing faster.
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