(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Shares of eBay Inc. (EBAY) are nearly 25% off its January highs, and shares may still have further to fall. Technical analysis suggests that eBay can fall by almost 9% more, with shares falling to nearly $31.50 from its current price around $34.60.
Analysts are also lowering their outlook for the company, trimming third-quarter earnings and revenue estimates. Price targets have also come down, after the company posted mixed second-quarter results, with revenue falling short of estimates. Options suggest the stock may drop by about 5% by January expiration, with the puts outweighing the calls by about 7 to 1 at the $35 strike price. (For more, see also: How eBay Makes its Money.)
The technical chart suggests shares fall by roughly 9% after the price of the stock fell below critical levels of technical support at $34.60. Additionally, the stock broke a nearly 2-year-old uptrend, which had been in place since October of 2016, another bearish indication. With support and the uptrend broken, the next level of technical support comes around $31.50.
The relative strength index (RSI) is also trending lower, with no signs of a change in direction coming. The RSI has hit oversold conditions of 30 many times, but still, the trend has been unable to change. Additionally, volume levels spiked when shares plunged following the stocks latest results on July 18. It would suggest that sellers were numerous and were looking for the exit.
Analysts have also been lowering their estimates for the coming third-quarter, cutting their earnings outlook by about 2%. Meanwhile, they slashed their revenue forecast by about 2.5%. For the full-year 2018, earnings estimates have risen by about 50 basis points, while lowering revenue estimates by 1.6%.
Earnings and revenue targets aren't all that have been cut. The average price target on the stock has also been reduced. Since July 13, analysts have cut their price target by nearly 7% to an average of $44.56.
Fundamental Chart data by YCharts
The one thing eBay's stock has going for it is its cheap valuation trading at just 13 times 2019 earnings estimates. The stock is currently trading at the lower end of its historical valuation range, and well below the S&P 500's one-year forward PE ratio of about 17. (For more, see also: eBay a Bargain as Street Misses Prospects: KeyBanc.)
The stock may prove to be a rocky journey over the coming months with the charts reflecting the negative sentiment of analysts. But that doesn't mean it will stop some investors from trying to take advantage of the discounted valuation of eBay's stock, which means some could be in for a long ride.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.