(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
eBay Inc.'s (EBAY) stock has had a horrible 2018 with the shares down by more than 30% from their January highs. Technical analysis suggests it may be about to get much worse for the stock, as it faces a decline of as much as 8% from its current price of $32.50.
Directional options support the technical analysis. Some options traders are betting the stock falls 5% by the middle of January. One reason for the negative sentiment is because analysts have lowered their growth estimates for 2019 since the company reported second-quarter results. The company is due to report third-quarter results on October 30. (For more, see also: eBay's Slumping Stock May Rise 9%.)
The chart shows that the stock is currently sitting at a level of technical support around the price of $31.65. Should the stock fall below that price than the shares may drop to as low as $29.70. Additionally, the relative strength index has been trending lower since September of 2017 and it would suggest that momentum has been leaving the stock.
The options market suggests that eBay will fall as well based on the options set to expire on January 18. The puts at the $32 strike price heavily outweigh the calls by about 13 to 1. For a buyer of those puts to earn a profit the stock would need to fall to approximately $30.50.
One reason for the bearish sentiment is that analysts have been trimming their earnings and revenue forecast. Since July, when the company reported second-quarter results, analyst have cut their sales estimates by 2% while boosting their earnings estimates by 1%. But the outlook for 2019 grows more dire. Now, analysts see earnings growing by 12% from prior estimates of 16%, while revenue estimates are forecast to rise by 8% from earlier estimates of 9%. (For more, see also: eBay a Bargain as Street Misses Prospects: KeyBanc.)
But despite the slowing sales and earnings growth, analysts still see shares rising by 36% to an average price target of $44, which may be too optimistic.
With such a negative sentiment for the stock coupled with slowing growth, it may make it difficult for the stock to rise in the future. But a strong set of quarterly results could change that sentiment in a hurry.
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.