Why eBay Belongs In Your Portfolio In 2012

eBay (EBAY) investors have been disappointed over the last five years. The stock is down some 25% from its highs of late 2007. I think the stock has finally dropped to a price level and valuation that should reward long suffering investors. It has some catalysts and recent momentum that should allow it to outperform the overall market in 2012.

click to enlarge image

Momentum drivers for eBay:

As you can see from the chart above, eBay is showing momentum and has solidly outperformed the market over the last three months.

The company is trialing a payment service at Home Depot (HD). Wedbush believes if adopted company wide, it could increase PayPal’s market by 35%.

Even though PayPal lost its CEO to Yahoo (YHOO), it is still is the fastest growing part of EBAY and that growth should continue. It is now doing daily deals competing directly against Groupon (GRPN).

Key value observations on EBAY:

• Even after its recent run, the stock still sells in the bottom third of its five year valuation range based on P/E, P/B and P/CF.
• Credit Suisse has an “outperform” rating on EBAY and a price target of $40 a share on the stock.
• The company is showing consistent EPS growth. It made $1.73 per share in FY2010, should make $2.00 in FY2011 and analysts expect $2.32 in earnings in FY2012.
• The company has beat earnings estimates for six straight quarters and a forward PE of just over 13 which is a 20% discount to its five year average.

Disclosure: I am long EBAY.