Recent Dip Providing Buying Opportunity On Ebay

Sales haven’t been growing as much over the last few years, in fact, they have been declining at a rate of 2% per year for the last three years. That trend seemed to reverse in Q1 when sales jumped 42%. Analysts expect sales to jump 17.2% in 2021.

From a profitability standpoint, eBay scores extremely strong marks. The return on equity is 76.3% and the profit margin is 29.3%.

On the valuation rating, the stock is trading at a very modest trailing P/E of 15.22 and a forward P/E of 14.99. Those are some very low ratings for a company that has performed so well fundamentally.

The Sentiment toward eBay is Surprisingly Pessimistic

I was surprised at what the sentiment indicators show for eBay. There are 32 analysts covering the stock right now with only 10 “buy” ratings and 22 “hold” ratings. This gives us a buy percentage of 31.3% and that is less than half of the average buy percentage. The average buy percentage falls in the 65% to 75% range. This stat becomes even more alarming when you think about it on a relative basis. Many stocks with far worse fundamental ratings have far higher buy percentages.

Please remember that I view the low buy percentage as a positive for the stock. A low buy percentage means there is far more potential for upgrades than downgrades. An upgrade from the right analyst or a series of upgrades could help push the stock higher.

The short-interest ratio is also showing greater pessimism toward eBay than the average stock. The ratio is at 3.47 currently and the average ratio falls in the 3.0 area. While this indicator isn’t nearly as pessimistic as the buy percentage, it is still suggesting that there is more bearish sentiment on eBay.

One sentiment indicator for eBay that shows greater optimism than the average stock is the put/call ratio. There are 113,670 puts open and 183,099 calls open at this time. This puts the ratio at 0.62 while the average ratio falls in the 0.9 to 1.1 range.

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