Stock Analysis - Essay Example

The Communications segment consist of Skype Technologies S.A., a service that enables VoIP or “voice over Internet protocol” calls and links with traditional fixed-line and mobile telephones. eBay sold 65% interest in online phone company Skype Technologies in October, 2009. The current price of the stock is $25.15. This is the last transacted price on October 19, 2009, the last trading day as of the writing of this paper. In comparison, the 52-week high and low prices of the stock are as follows: The current price of the stock is close to the 52-week high.

In fact, it has only been four trading days since this price was reached. The stock has corrected slightly since then, to a defensible $25.15 or a 1% drop. This is encouraging, because the fact that the price is resilient near its high indicates that buyer quality is good – that is, the purchasers bought for fundamental quality and tended to hold the stock long-term, rather than the speculative short-termers. When a stock has hit a recent high, it is possible that the stock may technically retrace as speculators unload to take profit.

However, when the reason for buying is due to fundamental reasons such as a good earnings forecast, advantageous shift in business strategy or disposal of non-performing assets, then the uptrend will be expected to continue. The Price-to-Earnings (P/E) ratio data is given in the table below (Thomson Reuters, 2009). It may be observed that the present P/E ratio of eBay is much lower than the industry and the market (as tracked by the S&P 500 index). The immediate impression this gives is that the stock is selling at half the price per dollar earned compared to other similar stocks or the general market.

If so, then the stock is still undervalued by the market and may be a good buy. On the other hand, a low PE ratio may also mean that the stock is