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EBay Revisited While Waiting to Buy

Ebay President Devin Wenig introducing the new eBay- a personal, global and mobile marketplace last October in New York City.
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Ebay President Devin Wenig introducing the new eBay- a personal, global and mobile marketplace last October in New York City.

My one and only son is a wheeler-dealer when it comes to buying and selling all kinds of items on the Internet. When he isn't working his magic using Craigslist, he's bidding or offering on the site of the "King" of online marketplaces.

EBay and its e-commerce business have remained a successful, American enterprise where bidders can buy and sellers can ponder the offers. When the company began in 1995 many wondered if the business model it offered would work. Today there are not many doubters left.

Headquartered in San Jose, Calif., eBay has become a true legend in its own time. As its online site describes, "With more than 100 million active users globally (as of the fourth quarter in 2011), eBay is the world's largest online marketplace, where practically anyone can buy and sell practically anything.

"..., eBay connects a diverse and passionate community of individual buyers and sellers, as well as small businesses. Their collective impact on ecommerce is staggering: In 2011, the total value of goods sold on eBay was $68.6 billion -- more than $2,100 every second," the site said.

In 2012 those figures continued to go higher.

EBay just completed four consecutive earnings quarters where it surprised on the upside. No wonder shares are trading (as of Monday) slightly below its 52-week high set on Friday at $56.66. That brings the trailing price-to-earnings (P/E) ratio to more than 28 and the forward (one-year) P/E ratio to around 17.4.

A careful look at the five-year chart of eBay helps us see not only its recent history but also the levels which investors had outstanding buying opportunities. Since the beginning of 2012 shares have almost doubled. We see that the share price and the trailing-twelve-month revenue per share rose in tandem.

I recently opined in an article about "The Fear Factor" that it's tempting to think eBay is too high and unlikely to move higher. Yet, fear and greed are not how the most successful investors in history became billionaires.

Today, in his editorial at DailyWealth Editor Steve Sjuggerud explains who is "The Best Investor of the Last 30 Years..." It's a fascinating look into the mindset of one of the best in the business.

Sjuggerud writes, "Gary Shilling might have the best track record of any investor over the last 30 years. ... If you had invested $100,000 in Shilling's 'big idea' 30 years ago, it would be worth over $6 million today."

Gary Shilling, according to Sjuggerud, kept his focus on his "big idea." "While most investors didn't pay attention to his big idea, Shilling was right. And he never gave up on his big idea," Sjuggerlund added. That's the way the most successful, legendary thinkers have always charted their course.

Whether it's with companies like eBay, or in "Finding Stocks Whose Time Has Come", we're compelled to be both insightful and visionary so we won't overpay but buy smart.

At more than 17 times 2013 projected earnings, value hunters would not necessarily call eBay a bargain. Yet, when compared to another e-commerce superstar like Amazon.com, which recently traded as high as 163 times its forecasted 2013 earnings, eBay might still look quite attractive.

Continued revenue growth will be the key to the immediate future of eBay's share price. Since its core "Marketplace" business saw its transactions margin rise to nearly 77 percent last quarter, revenue growth is much more likely to follow.

According to the company, active registered accounts rose to 117.4 million compared to the same year-ago quarter when that number stood at 103 million. Then there's the revenue eBay is enjoying through GSI Commerce, which it acquired in 2011.

GSI provides technology to help other companies' e-commerce enterprises. Instead of the blind leading the blind, with GSI eBay has the superstar of e-commerce helping other companies follow eBay's profitable lead. It's a great match that will drive eBay's earnings per share in the quarters ahead.

It wouldn't surprise this analyst to see eBay shares drift closer to the lower range of The Bollinger Bands. That may give us a chance to be a buyer nearer to $50 a share. If shares corrected 9 percent from Monday's closing price of $55.95, we'd experience a tempting buy-limit price of $50.92.

Don't be fearful, just be careful. Review and reacquaint yourself with the ways eBay drives its revenue higher and higher. Then pick a share price that looks fair to you and, as I like to say, don't chase the stock but let the stock come to you. Good fishing, due diligence and best results!

By TheStreet.com Contributor Marc Courtenay

Additional News: EBay CEO: Core eBay Marketplace Is Back

Additional Views: Is Amazon Misunderstood?

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Disclosures:

At the time of publication Marc Courtenay had no position in any of the stocks mentioned.

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