EBay Shares At A Fork In The Road
EBay Inc (NASDAQ: EBAY) has rallied sharply off of the October lows right along with the broader market in general and the NASDAQ in particular.
But is the rally justified by what's going on inside the company? Can the stock continue its winning ways, or will it falter at key resistance just above current levels?
Let's take a look at the combined fundamental and technical picture to try and establish what the future holds.
What The Bulls See
- A reasonable price-to-sales ratio of 3.87.
- Positive levered free cash flows of more than $5.6 billion annually.
- A strong balance sheet: cash of $10.4 billion that exceeds the total debt of $7.61 billion, a debt-to-equity ratio of 38.4 percent and a current ratio of 1.56.
- A stock that could break out above key "correction resistance" and explode higher.
What The Bears See
- Rich valuation metrics: a market capitalization of $68 billion that trumps the enterprise value of $65.40 billion, a price-to-book ratio of 3.42 and a PE ratio of around 17 versus estimated 2015 growth in revenues and EPS of 12.2 percent and 11.2 percent, respectively.
- Very slim to nonexistent profit margins.
- A stock still trading slightly below key "correction resistance," making it a great short-sale candidate.
The Technical Take
Technicians note that eBay is clearly at a crossroads at current levels. If the stock can break and close above the key "correction resistance" level of $55.40, it should have clear sailing up to the next projected resistance levels (based on Fibonacci analysis) at $57.41 and possibly $58.66. The downside target, should the "correction resistance" hold up, comes in at $44.
EBay might be a good short candidate for risk-seeking traders as long as it is trading just under $55.40. Any break and close above that level, however, may have the shorts running for cover.
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