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EBay Stock: Business Is Still Strong Without PayPal

In case you’ve been living under a rock, eBay (EBAY) stock is now worth just under $30 — a level not seen since late 2011. That’s because eBay (which was on a steady upwards climb since that time) just spun-off PayPal (PYPL).

eBayPayPal, one of the original alternative payment players, was the largest source of growth for eBay over that time period … so it’s unsurprising that investors have piled into PayPal stock since it became a solo entity.

And as InvestorPlace advisor Hilary Kramer recently pointed out, PayPal stock is chugging higher. Analysts are applauding PYPL, and the company’s earnings are set to grow at a double-digit rate over the next few years.

But what about the now empty-nester eBay?

Well, things haven’t been quite as pretty. A couple of analysts have already downgraded the stock since the spin-off, cutting price targets in the process. The analyst consensus for a $30 price tag isn’t much higher than eBay’s current level, either.

The Wall Street Journal summed up the sentiment surrounding eBay succinctly when the company reported earnings last month just before the split:

“The company’s second-quarter results, its last as a united entity, tell a story of two online giants headed in seemingly opposite directions. While PayPal can point to double-digit revenue growth and a slate of recent acquisitions, eBay is beset by shrinking sales and is jettisoning assets.”

One reason for the skepticism around eBay is the fact that competition has heated up dramatically. Everyone from tech giant Amazon (AMZN) to niche marketplaces like Etsy (ETSY) is vying for a piece of the puzzle.

But the flip in eBay sentiment in the wake of the PayPal spin-off could be overdone.

Competition is fierce in the space precisely because it holds such potential, and eBay doesn’t have to win the e-commerce wars to post strong and consistent results. Which happen to be two words that could sum up the eBay stock bull case recently laid out in The Motley Fool: “The Marketplace business is less capital intensive, produces better margins than PayPal, and provides relatively predictable cash flows.”

This is where being an early leader should not be discounted. EBay is an established name in a growing space, and there’s a good chance a rising tide could lift all boats.

While cooling consumer spending may seem like a red flag for retailers, an economic slowdown could prompt more shoppers to seek eBay in hunt for deals or to peddle their own wares.

Going back to eBay stock, its shares are currently trading for a forward price-to-earnings of 15 vs. long-term growth estimates just shy of 13%. That’s not a bad value. PayPal, for instance, is a bit frothy at 26 times forward earnings vs. predicted long-term growth of 17%.

MarketWatch recently noted the potential value as well:

“EBay gave a slight uptick in its revenue forecast for fiscal 2015, raising the lower-end of its guidance to 3% from flat-growth previously. The upper-level of the guidance calls for sales growth of up to 5%, adjusted for currency fluctuations.”

Bottom Line

That upgraded forecast sums up the most important thing with regards to eBay stock. In general, investing is an expectations game. So when comparing eBay stock to PYPL, it’s easy to be unimpressed at the former and mesmerized by the latter.

In typical fashion, investors flock to what’s new and shiny. Despite being overshadowed by PYPL stock right now, eBay is still solid.

EBay doesn’t have to be a game changer to be a good investment.

Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.

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