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A Case for eBay

Stocks in this article: EBAY

NEW YORK ( TheStreet) -- Shares of eBay (EBAY) whipsawed in the 48 hours following the company's third-quarter earnings report.

While results for the most recent quarter met expectations, a lower-than-expected estimate for the fourth quarter sent shares lower in after-hours trading last Wednesday.

On the earnings conference call, management seemed fairly optimistic regarding eBay's PayPal division, which continues to show respectable growth. The dismal outlook on the e-commerce market for the holiday shopping period, however, disappointed investors.

But on Friday afternoon, shares of eBay suddenly spiked higher, as the stock muddled near the lower end of its one-year trading range of $50 to $57.

At first, the move could have been confused with fund managers, or "smart money," gobbling up shares near year-to-date lows with a strong finish for equities expected in the last two months of 2013.

But as per usual, a report responsible for the move eventually surfaced, this time from AllThingsD.

In it, eBay CEO John Donahoe admitted that his company's outlook may have been a bit too downbeat. He said, "the truth is Bob Swan, CFO and I both have colds. I think it came across more negative than intended."

While blaming a cold may perhaps be a first, it was good for the CEO to clear the air for shareholders. Although in the report he still expressed caution, Donahoe did suggest that the government resolution could help holiday shopping.

Regardless, I think shares could be undervalued.

Up 2.3% this year, the stock is lagging the S&P 500, which is up nearly 22% in 2013.

Using the middle of eBay's fourth-quarter estimated earnings range, we can predict that eBay will earn $2.70 a share on $16.06 billion in revenue in 2013, an increase of 14.4% in earnings and 13.9% in revenue from 2012.

Of course, just because the company has demonstrated double-digit growth year-over-year, doesn't mean the share price has to appreciate.

If the company isn't growing as fast as analysts had hoped, the valuation will compress, adding downward pressure to the stock price.

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