(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
eBay Inc.'s (EBAY) stock has fallen a stunning 36% from its 2018 highs; now, options traders are betting the stock plunges an additional 16% by April. Should that happen, the stock would be 45% off those highs.
Technical analysis also suggests the stock may continue to fall over the coming weeks by 8% from its current price of $29.24. The stock plunged in October after PayPal Holdings Inc. (PYPL) noted lower than expected volume growth associated with eBay during its third-quarter conference call. Additionally, eBay provided lower than expected revenue guidance for the fourth quarter
Betting on a Decline
The put options at the $29 strike for expiration on April 18 heavily outweigh the calls by a ratio of 6 to 1, with 6,000 open put contracts, suggesting that the stock may fall 8% to $27. But some are betting the stock drops as low as $25, a 15% decline, based on the rising open interest levels at the $26 puts.
Weak Technical Chart
The chart also suggests the stock may continue to decline. Price is failing to rise above technical resistance around $29.75. This indicates that the stock is likely to fall back to technical support at $27.15. Additionally, the relative strength index is trending lower since peaking above 70 in early 2018, suggesting momentum is leaving the stock.
As a result of the weak fourth-quarter revenue guidance, analysts have reduced their earnings estimates for the quarter by 1% to $0.68 per share. Meanwhile, revenue estimates have dropped by about 1% to $2.9 billion.
Analysts have also cut their revenue and earnings growth rates for 2019 and 2020 since the beginning of October. For example, analysts now see revenue in 2020 growing by 8%, down from previous estimates for 9%. Additionally, earnings growth is now expected to slow to 14% from 16%.
The average analyst's price target has also been slashed. The stock is now seen rising 26% to $37.20, but that is down from the prior price target of $44.13.
eBay's stock has been a big disappointment in 2018, and as it stands, that trend may very well continue into 2019 based on options betting.
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.