(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
eBay Inc. (EBAY) shares have climbed by roughly 28.5 percent over the past 52 weeks, and based on improving optimism within the analyst community, more gains could be on the way.
Analysts are looking for revenue to jump by nearly 15 percent in 2018, and earnings to rise by about the same. The technical charts are also pointing to signs that eBay could continue to rise despite a sharp pullback in recent days. Analysts project that eBay's revenue will climb by 14.5 percent in 2018 to $10.96 billion, while earnings are expected to rise by 14.2 percent to $2.28.
But more impressively, analysts have increased their revenue outlook for 2018 by nearly 7 percent in the past 30 days, according to YCharts. This suggests the analyst community is getting more optimistic about eBay and is gaining more confidence in the stock.
Analysts Getting More Bullish
The chart above shows that recent revenue expectations have risen since the company recently reported its results on January 31. eBay reported fourth-quarter revenue that came in line with estimates at $2.613 billion, on earnings of $0.59 a share.
The company also issued better-than-expected revenue guidance of $11 billion at the mid-point, and non-GAAP earnings estimates of $2.275. Revenue is expected to climb over the next three years to $12.99 billion in 2020, from 2017's reported $9.567 billion. That's annual growth of 10.7 percent.
Since September 2017, the number of analysts with a buy or outperform rating for eBay has climbed from 39 percent to 44 percent. That means that 12 analysts now rate the company with a buy recommendation. That's up from 9, while the number of outperform ratings has risen from 5 to 6. Meanwhile, 21 analysts currently rate eBay with a hold, and only 2 with a sell.
Technically, shares of eBay have also declined, from its peak immediately following its fourth-quarter results. The stock gapped higher on February 1, climbing to $46.99, but then plunged in the days that followed as the broader market saw sharp declines, to a low of $40.43 on February 9. That's a drop of nearly 14 percent from peak to trough.
But eBay has a clear uptrend in place right now, and with the gap filled following the results, the stock will likely continue to work higher toward it previous highs around $47. That's a rise of roughly 8 percent from its current price around $43.40.
Despite the optimism amongst analysts and its bullish technical outlook, options traders show very little enthusiasm for eBay. The options set to expire on July 20 show muted activity on the call side. But there are some bets showing traders are looking shares of eBay to fall, with nearly 2,000 contracts of open interest for the puts at the $40 strike price.
eBay will need to show investors that its revenue growth will continue to improve, and that should fuel even more confidence within the analyst community. Should that happen, then the stock should continue rise. If not, the stock could suffer a significant setback, and analyst confidence could crumble. (See also: How eBay Makes its Money.)
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.