It’s Time For An Auction: eBay Inc (EBAY) and More

No, this isn’t a cattle auction, antique auction, or even a estate auction, but there are investments that need to be sold and bought. As investors, we can spend a lot of time researching companies, trading stocks, and even wondering if we made the right decision. I heard something a few years ago that has stuck with me ever since: “If the situation you are in doesn’t reward you for your efforts, change the situation.” There are some companies that are struggling in major ways, and some companies that could change the results of our efforts.

Hewlett-Packard Company (NYSE:HPQ) is one company that shows how quickly the PC is becoming a thing of the past. If there was a “Death of the PC” movement, Hewlett-Packard would have to be the poster child. The company’s revenues fell 8% in 2012, but that pales in comparison to their stock, which has fallen 43% in the past year. In only two of the past five years has the company shown an increase in revenue. Desktops and printers were once the company’s bread and butter items, but accounted for less than 49% of the company’s revenue in 2012. If there is anything that appears positive, the stock seems to be very cheap as the company shows a 21% free cash flow (FCF) yield.

J.C. Penney Company, Inc. (NYSE:JCP)’s CEO Ron Johnson promised a “turn-around” for this company previously labeled as a retail giant. To start 2012, J.C. Penney alienated much of its customer base by no longer accepting or issuing coupons. In four of the past five years revenues have decreased, including nearly a 20% decrease in 2012. One year ago the stock was 54% higher than it is today. This probably wasn’t the “turn-around” investors were hoping for, but that’s not all. The company also suspended its dividend in May, but does show a 10.1% FCF yield.

eBay Earnings ReportCompetition plays a large role in the success of any company, but Best Buy Co., Inc. (NYSE:BBY) may be the most glaring example. With competitors such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY), Best Buy is struggling to stay afloat.

While Amazon and eBay’s stocks have increased nearly 41% and 70%, respectively, Best Buy has experienced around a 39% decrease. Best Buy’s stock continued to flounder even after Richard Schulze made a bid to buy the company. Admittedly Best Buy has not seen a decrease in revenues for the past decade, but neither has eBay or Amazon.

Valuations on Amazon are often tricky, due in part to how quickly the company is growing. For a company like Amazon, FCF yields may not be the best method, as Daniel Sparks explains in a recent post. He suggests using cash from operations as an alternative valuation.

After Amazon experienced twelve fold revenue increases in the past decade, Best Buy’s 258% increase seems shabby. eBay’s revenues have increased by 650% in the same time frame. If cash from operations is used to value Amazon as Daniel suggests, Amazon is actually under-valued despite this enormous growth. eBay’s 3.5% FCF yield is far more expensive than Best Buy’s 10.1%, but at least the company is growing. USA Today speculates that Best Buy will close hundreds of stores in 2013, which landed Best Buy in a compiled list of eight companies expected to have the most closures.

Many times investing comes down to perspective. Every one of these companies has an opportunity to grow, but some seem to grasp the idea better than others. The graph below shows how these stocks have performed in the past year with the S&P 500 as the bench mark.

HPQ data by YCharts

The Foolish Bottom Line…

So, here is the deal. Every investor has different ways of placing value on a company, and no two investors will see something exactly the same way. To me, Amazon and eBay have shown steady growth and great performances with no reason to believe they will stop. While I don’t own sharse of any of these companies currently, I would have to ponder changing my situation if Best Buy, J.C. Penney, or Hewlett-Packard were in my portfolio. After all, our efforts should be rewarded.

The article It’s Time For An Auction originally appeared on Fool.com and is written by Tyler Wofford.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!