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EBay (EBAY) Showing Signs Of Being A Roof Leaker

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified eBay ( EBAY) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified eBay as such a stock due to the following factors:

  • EBAY has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $1.3 billion.
  • EBAY has traded 551,664 shares today.
  • EBAY is trading at 2.95 times the normal volume for the stock at this time of day.
  • EBAY crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on EBAY:

eBay Inc. provides online platforms, tools, and services to help individuals and merchants in online and mobile commerce and payments in the United States and internationally. EBAY has a PE ratio of 19.6. Currently there are 23 analysts that rate eBay a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for eBay has been 14.9 million shares per day over the past 30 days. eBay has a market cap of $68.8 billion and is part of the services sector and retail industry. The stock has a beta of 0.77 and a short float of 1.7% with 0.72 days to cover. Shares are down 3.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates eBay as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, growth in earnings per share and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.

Highlights from the ratings report include:

  • EBAY's revenue growth has slightly outpaced the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 13.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Although EBAY's debt-to-equity ratio of 0.17 is very low, it is currently higher than that of the industry average. To add to this, EBAY has a quick ratio of 1.52, which demonstrates the ability of the company to cover short-term liquidity needs.
  • EBAY INC has improved earnings per share by 14.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, EBAY INC increased its bottom line by earning $2.18 versus $1.99 in the prior year. This year, the market expects an improvement in earnings ($2.98 versus $2.18).
  • Net operating cash flow has increased to $1,713.00 million or 23.68% when compared to the same quarter last year. Despite an increase in cash flow, EBAY INC's average is still marginally south of the industry average growth rate of 23.85%.

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