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Ebay, Up 72% In a Year, Now a Gauge of Market Sentiment: Here’s Why

Investor chatter about eBay’s (EBAY) could hardly be happier these days, and that’s led the stock to gain some 72% in the past 12 months alone. Investors believe the company has a wonderful year ahead, and it expect to see that optimism affirmed in the company’s fourth quarter earnings report Wednesday night. Watching Wall Street’s reaction to this report – whatever it says – should provide a tiny bit of insight into the mood of the 2013 stock investor.

On the one hand, eBay shares look set for a fall. There’s easy profits to take, as seen in a stock chart, which when investors are wary, makes disappointing earnings, or even a mere match on expectations, a popular reason to sell.

EBAY Chart

EBAY data by YCharts

And eBay shares trade at a PE ratio of 18 and five times sales. While those aren’t outrageous valuations considering forecasts of 16% revenue growth and about equal profit growth in 2013, they’re high enough to give a lot of analysts’ pause about recommending the shares now. Canaccord Genuity analyst Michael Graham reiterated a hold rating on Tuesday.

Despite all those profits to take, a lot of selling in eBay shares now would be noteworthy for all investors; a sign that the anxiety level in the market is perhaps higher than many realize. Because really, no one wants to dump eBay shares at the moment. In his reiterated hold rating, Graham sounded almost pained that he couldn’t recommend buying them. After a few desperate years of reinvention, the company has evolved from an online auction website into a major retail force, in a couple of the fastest growing industries around. This rarely happens with a company that already has a $67.98 billion market cap.

EBAY Revenue TTM Chart

EBAY Revenue TTM data by YCharts

eBay remains one of the Internet’s biggest stores, and as such enjoys the growth of ecommerce generally. It also wheedled its way into physical stores in December, where the vast majority of shopping is still done. The company created a new revenue stream by developing mobile apps for shoppers at Target (TGT), Macy’s (M) and several other major retail partners. The apps send coupons to shoppers as they come in or runs store-specific tasks. At Toys R Us, for example, shoppers can get gift suggestions by inputting details like age of the intended recipient. While these may be gimmicky now, becoming a known entity for mobile users is expected to pay off long-term.

eBay’s PayPal also has moved into the mobile market and probably processed some $10 billion in mobile payments last year. PayPal has been the growth driver for eBay and is expected to be in the future, but the rate is slowing down. International expansion of PayPal is a big part of eBay’s plans to keep it in double-digit growth rates, so investors wouldn’t welcome any cautionary statements about China and Europe economies from the company.

The biggest threat to eBay’s share price is simply the growing competition. In its marketplace business, Amazon.com (AMZN) is the elephant to contend with. eBay may be getting ahead of Amazon in transactions over mobile devices, as the tech site AllThingsD speculates, and that would help eBay long-term as consumers quickly move to that platform. There is a very long list of competition for PayPal, ranging from Square, the company that allows anyone to collect a credit card payment via cell phone, to Google (GOOG) and Visa (V).

Even so, eBay has become a popular way to play a growing industry in a large cap investment. Barring a serious disappointment or unexpectedly dour outlook, selling in eBay shares post results would probably say more about fear in the market than worries about the company itself.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.

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