Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high.
Ebay (EBAY). Ebay trades at about $31. This is down almost 45% over the last two years. Is the company that much worse off. Probably not. Recently, Wall St. seemed to be happy that Ebay raised its listing fees. During 2006, the company’s website had over 143 billion pageviews ahead of web portals including MSN and AOL.
Ebay may be underestimated by investors who do not always appreciate its sheer size and cash creation. The company has over 100 million registered customers. It also has a 78% gross margin and threw off cash of over $1.63 billion over the last four quarters.
According to The Motley Fool, Ebay’s P/E has dropped each year since 2002. in 2003, it was 97. Measured by the financials of the last four quarters, its is 43.
The company also has PayPal, one of the great e-commerce enabling engines in the world. Morningstar, which rates Ebay at Five Stars, says that the addressable market for PayPay is off is Ebay is 10x what it is on its parent’s auction site.
Ebay’s plans to operate with a partner is the massive Chinese market will probably work better than going it alone. And, international markets will remain an area of potentially sharp growth for the big online auction operation.
Factors that could drive stock value above forecast:E-commerce is rising between 25% and 30% a year based on studies from firms including IDC and Comscore. If this rate accelerates as consumers move away from bricks-and-mortar stores, Ebay will benefit. Ebay’s new joint venture in China could do better than its current solo operation.
Factors that could move stock value below forecast: Ebay’s rate increases could backfire and merchants could attempt to move business elsewhere. Ebay still trades at over 40 times earnings, so if its revenue falls below Wall St. estimates, investors could hit the doors.
Douglas A. McIntyre can be reached at [email protected]. He does not own shares in companies that he writes about.
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