eBay is cheap, Google is cheaper

Another misleading article about eBay was published recently by fool.com entitled Google Is Cheap, eBay Is Not. The conclusion that Google is cheaper than eBay is correct - the forward multiple of Google is lower based on upwardly revised earnings estimates for Google. But just because eBay is more expensive than Google doesn't mean it is expensive compared to the market.

How about comparing eBay with Coca-Cola? Both are giants in their sector. Both are financial powerhouses. The forward PE for KO is 18.8 compared to 30.1 for eBay. That give KO a PEG (PE / Growth) of 2.5 wheras eBay has a PEG of 1.4. If you add KO's yield of 2.5% to its growth to make the comparison fairer, KO's PEG is 1.9. So eBay is cheap!

With its forward PE almost down to 30 you wouldn't think that eBay could sink much further. But I was thinking that when the share price was at 42! I am starting to worry about the share price but I only sell at a loss if the story of a company has changed. eBay still has all the fantastic unique factors about its business that made me buy it. It is just that growth has slowed. I guess the lesson is: just because a fantastic company falls 20% overnight doesn't always mean it is oversold.

Q1 results are in

The Q1 figures are in for Google and eBay. eBay did OK but it is no doubt who the new star is. Google's earnings were six times higher than Q1 2004. Six times! EPS of $1.12 was 20 cents ahead of analysts' estimates. The shares are up almost 10% in after hours trading. It looks like at least one of the members of my portfolio is going to be in the black for the forseeable future. I won't be going for a quick sell with Google - the future is too bright. If things continue like this then $300 by the end of the year is possible.

eBay's results were slighly better than analysts' estimates and guidance was increased slightly for the year. Profit was up 28% year on year and margins were improved slightly. The Chinese market is growing strongly but growth in the USA and Germany is slowing down. However I think the most pertinant statistic was the table of year on year growth for the last five quarters. The figures go like this: 59%, 51%, 51%, 43%, 36%. So in one year eBay has gone from an astounding 59% growth rate to a much more mature 36%. No wonder sentiment has changed so much. I am just glad I sold my shares when the trailing P/E was well over 100 as I don't think we will be seeing those days again. Unfortunately I bought back in a bit too soon but eBay will be OK in the long run.

eBay death march

Looking at eBay's share price over the last 5 trading sessions is like looking at the cross-section of a very steep deep valley. Unfortunately the left hand side. The shares have gradually and steadily given up 11%! There is no particular bad news around so I can only conclude that it is negative sentiment before the Q1 earnings report next week. There is a rumour that guidance is going to be reduced.

Are the earnings really going to be that bad? I thought this sort of negative sentiment was already priced in.

My silly prediction that eBay would never again close below $35 looked good for a few weeks but now looks very silly. Serves me right for making predictions.

What next? $30? Aaagh!

Portfolio performance

Time for a little reflection on the current performance of my growth portfolio.

I have totally re-worked my portfolio this year, taking a nice short-term profit in British Airways, selling out of Vodafone at about break even and ditching my Centrica shares for a small profit.

Most of the money went into Internet companies: Google, eBay and Ask Jeeves. I also put some money into UK small cap. Big Yellow Group for some diversity and education in investing in small companies. When ASKJ shot up on the IAC acquisition news I sold out as the share price will probably go nowhere until the acquisition is complete. I have just put the proceeds into Frontline Ltd - an oil tanker company!

All four companies are showing a loss at the moment!

BYG - down about 7% on low volume. I am not worried about this one. The share price is reasonably dynamic but the overall trend is positive. This is one for the long term.

EBAY - down about 10% (this is after a strong recovery over the last few weeks!) I have said a lot about eBay and don't need to say much more. Suffice to say that I am not losing any sleep about the current share price. The price has shown significant strength over the last few weeks in a falling market. I plan to hold on to these shares until they become massively overpriced again (P/E over 100 for example.) If this means I hold on to them for another 10 years then that is fine.

GOOG - down about 6%. There seems to be a lot of support for GOOG at the $180 level. This is a fantastic company and one I would be happy to hold for years or alternatively sell if it becomes massively over-hyped and then buy back in at an opportune moment.

FRO - just bought in and down slightly. Frontline is a wild card in the pack. Almost anything could happen to this one but it is run by a very clever man and is paying outrageous dividends so I think the risk is balanced in my favour.

The future is bright.

How to buy shares

It looks like I still need lessons in the mechanics of purchasing shares. I thought I had purchased 37 shares in Frontline Ltd. Infact my limit order never executed and I discovered this morning that I still had the cash. Ooops! I placed the order as the share price was shooting upwards on Thursday and obviously my entry price was never reached.

Unfortunately the market has not been kind to me in the meantime. The FRO share price has gone up and the dollar has strengthened (my account is sterling denominated.) So now I have 35 shares instead of 37! More care is required in future methinks!

On the Frontline

Yesterday I noticed that my Ask Jeeves shares had ticked up to almost $28 so I sold them for about 17% profit. I then plunged the proceeds into Frontline Ltd. I was a bit disconcerted when I was about to buy the shares that they had jumped up 4% at the market open but I took this as a sign of strength and carried on. They have since risen enough to cover the dealing cost and show a profit. Not a bad start.

The plan for these shares? I am happy to hold them and enjoy the huge dividends until the picture changes. I quite enjoy learning about oil tankers anyway!