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EBay Guidance Versus Amazon’s Financials: Who Is The Best?

Read more articles on Finance and Internet Marketing and Internet and Investing.

February 27, 2007

Posted by neillevine

About This Editor: I am a writer. Have been writing for other sites, but expect to do most of my future work HERE! My expertise extends from the esoteric such as burning hydrogen to the unpredictability of the stock market and my writing makes me a jack of all trades and exasperated master of none. I have had some influence over national wildfire and water policy and there are hints of a change in energy policy, BUT as Samuel Goldwyn once said, "A verbal promise is not worth the paper it is written on."

         

We have seen why Cisco, CSCO, and Google, GOOG, look like good investments. We have also looked at the businesses of EBay, EBAY, and Amazon, AMZN.

Well, EBay and Amazon are also publicly owned companies with guidance and financials that can be examined. EBay has trailing twelve month earnings of $0.79 and a price earnings ratio of 42.13, pretty rich, with projections of $1.28 in per share earnings for December, 2007 and $1.51 for December, 2008. Amazon’s earnings for the current fiscal year are $0.45 with a price earnings ratio of 90.29, also high, with projected earnings of $0.67 for 2007 and $0.97 for December, 2008. To clarify why these rich multiples are not so good for potential investors, you have to look at price earnings ratio from the In theoretical viewpoint that a price earnings ratio of forty would imply a 2.5 percent return on investment while a PE of 20 would yield five percent, a much better return. A high price earnings ratio also implies a riskier investment meaning it is easier to lose money on adverse developments. Although the promise of twenty five percent earnings growth is a lucrative attraction considering banks are only paying five percent.   Of course, in two years the current stock quote becomes reasonable with the promise of future earnings growth to come. 

In contrast, companies involved in the home construction and supply business such as Home Depot, HD, Lowe’s, LOW, Toll Brothers, TOL, Hovnanian Enterprises, HOV, D.R. Horton, DRI, Pulte Homes, PHM, Centex, CTX, Lennar, LEN, and and so on have been reporteing lower earnings and are trying to put an upbeat spin on their prospects to boost the price of their stock, something they are entitled to do. The cause of the group slump is higher interest rates forced on the economy by The Fed in the name of fighting inflation. In simple numeric terms, an increase from four percent to five percent on a two hundred thousand dollar home loan is an extra two thousand dollars a year in payments. The higher bank rates are forced the higher mortgage payments become and, as we are seeing the more serious the slump that sets in. Home building will eventually recover and go on to sell more and more homes but the current slump makes it difficult to earn money explaining the stock slump.

You could see this coming as I reported on the other site I have been writing for: http://www.useless-knowledge.com/1234/may/article079.html, meaning that it is possible to figure out when is a good time to invest in the construction industry. I am not sure that now is the time since The Fed as now personified by Mr. Bernanke does not appear to be done raising rates meaning the pain and suffering may not be over.

The same financial analysis can be applied to the automotive industry since rising interest rates make it more expensive to purchase big ticket cars translating into lower sales. Of course, there are a lot of people who do not understand these fundamental concepts which makes the stock market so interesting and also so unpredictable.