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.