eBay Slide Brings Bargain

It might be time to buy eBay(EBAY Quote - Cramer on EBAY - Stock Picks).

Shares of the auction giant were off more than 6% on Thursday following the company's third-quarter earnings announcement late Wednesday. eBay topped Wall Street's top- and bottom-line expectations while also raising forecasts for the fourth quarter and the entire year.

The news brought an initially bullish response that sent shares 5% higher in after-hours trading on Wednesday, but the sentiment swung dramatically on Thursday after a downgrade and a bearish note by one analyst.

But the criticism tends to dismiss the considerable strengths of eBay's business while focusing unduly on the downside. Thursday's selloff may have brought investors a good opportunity to enter the stock.

Deutsche Bank analyst Jeetil Patel wrote in a Thursday note to clients that eBay's third quarter, while seemingly impressive, received an unusual boost from favorable foreign-exchange and tax considerations. Meanwhile, the growth of the number of transactions conducted on eBay has flattened, Patel wrote, meaning the company may have to spend aggressively on advertising to attract more users. That, in tern, could cut into margins further along with triggering other problems.

"We think eBay is facing a worst case scenario in its business due to 2% transaction volume growth (& potentially declining soon) user disengagement, higher ad costs, declining purchase frequency, rising seller costs and operating margin pressures," Patel wrote.