eBay's Slumping Stock May Rise 9%

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

eBay Inc. (EBAY) has had a tough 2018, with the stock down almost 8% this year and more than 24% off its highs. Now the stock is starting to trend higher, and the technical charts are suggesting the stock rises over the coming weeks, by roughly 9%. Some options traders are betting the stock rebounds in the coming weeks as well, by as much as 9% by the middle of November.

The company issued mixed quarterly and full-year guidance in the middle of July that sent shares lower. That has resulted in analysts cutting their earnings and revenue estimates for the coming quarter.

eBay data by YCharts

Bull Technical Chart

The stock has gapped lower in July following the disappointing results. Now shares are starting to trend higher again and have increased above technical resistance at $34.60. Should shares look to refill the technical gap; the stock could rise by about 9% to $38. The relative strength index (RSI) is still trending lower and is attempting to turn higher. Should the RSI break out, it would suggest that bullish momentum is moving into the stock.

Bullish Betting

The $37 calls due to expire on Nov. 16 have seen an increasing level of activity, with the open interest levels rising to almost 6,000 contracts. For a buyer of the calls to break even, the stock would need to rise to roughly $37.85, an increase of about 9%.

Reducing Estimates

Analysts see the price of eBay rising by more than 27% to an average analyst’s price target of $44.26. But that price target has dropped since the middle of June from more than $48 per share. That's because estimates for the current quarter have been declining. Revenue is forecast to grow by more than 10% for the quarter to $2.66 billion, but that is down from $2.73 billion. Meanwhile, earnings are forecast to grow by almost 15% to $0.55 per share, down from a prior forecast of $0.56.

EBAY EPS Estimates for Current Fiscal Year data by YCharts

Full-year earnings and revenue estimates have remained unchanged. But 2019 and 2020 estimates drop, with earnings forecast to rise by 12% and 16%, to $2.57 and $2.98 per share. That's down from prior estimates of $2.60 for 2019, and $3.00 for 2020.

It would seem investors are taking a more positive view on eBay—a sign that they are betting the current revenue and earnings shortfall will soon pass.

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.