EBay Share has Significant, Odd Call Option Trading Volume - Emphasizing Its Worth
EBay Inc. (EBAY) witnessed a surge in call options with expiry dates on Friday, indicating significant institutional interest in the stock. Currently trading at $72.32, the tech company has reached a six-month high,. The heavy call options are out-of-the-money but could result in profitable trades for buyers if EBAY continues to rise.
Despite posting a 1% year-on-year increase in Q1 revenue and non-GAAP earnings per share (EPS), EBAY reported growth of 36% in free cash flow (FCF) for the quarter. The FCF margin, which represents FCF as a percentage of revenue, rose dramatically from 18.5% last year to nearly 25%.
EBAY's Q1 report, published on April 30, also revealed a 10% increase in non-GAAP EPS due to share repurchases. The company reported FCF of $644 million, with only $134 million allocated to dividends, equating to 20.8% of the quarterly FCF.
Analysts' revenue projections for this year and the next suggest a $10.62 billion revenue in 2021 and $10.97 billion in 2022, implying an next 12-month (NTM) run rate of $10.8 billion. Assuming an average FCF margin of 21.7% for the last year, eBay may generate $2.34 billion in FCF.
To value the stock, one can use an FCF yield metric, assuming that 100% of FCF would be paid out as dividends. However, current dividend yield is only 1.60%, which is too low for FCF yield. To compensate, analysts suggest that the FCF yield should be around 7.50%. Using this metric, the estimated market value of EBAY stock is $32.34 billion, which is close to its current market value of $33.28 billion.
However, analysts are divided on the most likely multiple the market will use, with some arguing for a lower FCF yield of 15 - 18x. Applying this metric, the estimated market cap would be $40.44 billion – – a 21.5% increase over the current market value of $33.28 billion, implying a price target of $87.87 per share.
According to AnaChart.com, the average of 26 analysts' price targets for EBAY stock is $76.61 – a 5.9% growth compared to the current price. Nevertheless, investors should approach this trade cautiously, as the call options in today's heavy volume expire in just two days. In-the-money (ITM) calls with longer expiry periods might be a safer option for investors looking to capitalize on this trend.
Analysts agree that eBay's strong financial performance supports its value, with factors such as growth in gross merchandise volume (GMV) and active buyers, increasing take rates, and advertising revenue growth contributing to a positive outlook. Some analysts predict an upside of 12.4% from current prices due to these factors [1][2].
[1] "EBAY Target Prices and Analyst Ratings on StockMarket.com" - https://stockmarket.com/symbol/EBAY/target-price[2] "EBAY Stock Forecast and Price Target" - https://analystpriceforecasts.com/ebay-ebay-stock-forecast-price-target/
EBAY's financial performance, driven by factors like growth in gross merchandise volume (GMV) and increasing take rates, has caught the attention of technology investors, as indicated by the surge in call options on the stock. To capitalize on this trend, some investors might consider ITM calls with longer expiry periods, followed by a strategic shift towards technology investments in the finance sector.
