Internet rotated out

The above image from Yahoo! shows what has been happening to the Internet sector in the last week. After the three respective earnings releases failed to impress there has been a gradual rotation out of the Internet sector. As a holder of Google and eBay it has been a bit disconcerting but at least it is just a general adjustment and not any specific problem with either company.

My timing of the selling of Microsoft and purchasing of eBay was particularly unfortunate. I sold MSFT just before their earnings release, after which they jumped over 5%. I then bought eBay at $44 and they are now down to $40. This is just the way it goes some times and there is nothing you can do about it. I still maintain that eBay was a bargain at $44. At $40 it is an absolute steal but someone is selling a lot of eBay shares and until they stop the SP will not recover.

The forward PE for eBay is now under 40. Surely that is low enough for a company growing at 40%? The PE decay of eBay over the last 14 months or so has been painful. At Christmas 2004 the trailing PE was well over 100. Luckily I sold my holding then and bought in after the earnings release when the SP was at $42. One year later the trailing PE is down to 50 and the SP is at $40. All this time the company has been healthily growing at a 40% clip. This is the danger of buying at high multiples and I am just glad I am not one of the poor people who bought this at $57. They might have to wait another year to get their money back.

eBay is in great shape. One day the SP will be too. I will just hide behind the sofa in the meantime.