You've got to love earnings season. I know I do, but not for the same reason many others do.
There is often far too much attention paid to a single quarter's results and the gyrations in stock prices that result can be excellent examples of market inefficiencies. That's the part that I like -- inefficiencies that can provide solid buying opportunities when markets overreact to so-called "poor" results.
There are certainly times when one quarter's results reveal deep cracks in a company's foundation that can't be fixed, but that's a different story. I am more interested in the two-cent earnings miss that sends investors to the sidelines and crushes a stock price far more than is deserved. That presumption is in the eye of the beholder, so this is far from an exact science.
One report that I am anticipating is eBay Inc.'s (EBAY) third-quarter results, expected to be released after the market close here on Wednesday. EBAY has had a rough year, with its shares down 40% year to date. It's not all that surprising given the current state of the economy that investors are turning up their noses to what I see as the greatest online upscale flea market ever conceived. Personally, I've been on this site way more than others such as Amazon (AMZN) , and always find something interesting, often unique.
I once found an original game-used 1977 (first year) Seattle Mariners jersey; it had been altered, but turned out to be an authentic, Bill Laxton game-used jersey, and it was cheap. Laxton was the winning pitcher in the Mariners first-ever win and an expert told me there was a 1 in 2 chance this jersey was the one Laxton wore during that first Mariners win. I even contacted Laxton, who was kind enough to call me back, but he was unable to verify whether I had that first-win jersey.
EBAY shares currently trade at just 9x 2023 consensus earnings estimates, implying that expectations are quite low. The company no longer is the growth story it once was and is priced accordingly. Third-quarter expectations are calling for revenue of $2.32 billion and earnings per share of 93 cent, versus $2.5 billion in revenue and earnings of 90 cents a share for like quarter last year. I would not be surprised if eBay shares get hammered if they miss, even by a relatively small amount. Of course, one of the other factors in this equation is company guidance; that also can have a huge influence.
EBAY ended its latest quarter with $3.2 billion in cash and short-term investments and $7.7 billion in debt. Its shares currently yield 2.2%; the quarterly dividend was first initiated in 2019 and has grown from 14 cents to 22 cents. I last owned EBAY shares coming out of the 2008-2009 market meltdown, when it became exceedingly cheap.
It isn't just EBAY that I am interested in, but rather all of retail. It already has been a horrendous year for the sector, and given the stretched consumer and lingering inflation I wondering if the most significant damage is already priced in or whether there's another shoe or two to drop.
