eBay is in a key strategic position to grow in the coming quarters. As the baby boomer population ages, they will have more time to use this online marketplace to look for specific items. For example, retired antique car collectors will use eBay to find those hard-to-find car parts. Additionally, this group will increasingly begin to engage in mobile shopping, a trend that eBay CEO John Donahoe expects will boost sales by 60% in 2012.
Looking at the numbers data, my analysis of eBay's trailing 5 year valuation metrics suggest that the stock is undervalued as all three of the metrics are in the lower end of their respective five-year ranges. eBay's current P/B ratio is 2.31 and it has traded in a range of 1.6 to 4.8 over the past five years. eBay's current P/S ratio is 3.56 and it has traded in a range of 1.9 to 7.4 over the past 5 years. eBay's current P/E ratio is 13.2 and it has traded in a range of 9.7 to 24.3 over the past three years.
eBay’s forward valuation metric suggests a similar conclusion as the trailing. The stock is currently trading at about $33 a share with analysts expecting EPS of $2.65 next year, an earnings increase of 16% year over year, for a forward P/E ratio of 12.3. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Amazon (AMZN) is currently trading at about $191 a share with analysts expecting EPS of $2.85 next year, an earnings increase of 91% year over year, for a forward P/E ratio of 62.8. Google (GOOG) is currently trading at about $612 a share with analysts expecting EPS of $49.74 next year, an earnings increase of 18% year over year, for a forward P/E ratio of 11.7. Yahoo (YHOO) is currently trading at about $16 a share with analysts expecting EPS of $0.93 next year, an earnings increase of 13% year over year, for a forward P/E ratio of 16.9. The mean forward P/E of eBay's competitors is 30.5 which suggests that eBay is undervalued relative to its publicly traded competitors.
In my analysis of past performance, eBay has beat EPS estimates three times in the past four quarters. The company's EPS figures have come in between 0 and 3 cents from consensus estimates or about 0% to 5.3% from analyst estimates. The company's earnings come been relatively close to consensus estimates which suggests that analysts are good at projecting the company's results and share upside from earnings surprises will be limited.
This stock presents a solid opportunity for investors at current price levels. An improving jobs and economic outlook, coupled with an aging population of potential buyers who are trending toward making online purchases of specific, hard to find goods will increase. In my opinion, this puts eBay in a key strategic position, making it a buy for me right now.