eBay--for Hard Times

When, without much fanfare, eBay (EBAY ) announced on Dec. 18 that Chief Operating Officer Brian Swette was quitting, shares of the top online auctioneer dropped from 69.29 to 66.81. Nervous investors bailed out, figuring something must be amiss if the head honcho was leaving.

Enter some hotshot pros--who, taking advantage of the tumble, snapped up stock. No, they weren't momentum traders jumping on quick-buck gains. These money managers were scouting for solid stocks that could grow fast despite a slow-growth economy. EBay a moribund-economy play? Exactly, says William Harnisch, president of Forstmann-Leff Associates, which manages $6 billion. He says eBay is one of the few companies that can sustain speedy growth even in a sluggish environment. Through its Internet properties, eBay has emerged as a global market for antiques, autos, art, coins, collectibles, computers, and toys. It is hard to match online or offline, and "has no real competition," says analyst Derek Brown of W.R. Hambrecht, who rates the stock a strong buy. "EBay is a core Net holding with long-term prospects of 40%-plus operating margins," he adds. True, eBay's price-earnings ratio is a lofty 90, with an $18 billion market cap. But Harnisch isn't averse to buying a high p-e stock if its growth rate justifies it. He says eBay has been growing at 50% a year. The ratio of eBay's p-e to its growth is 1.8. Harnisch says it deserves to trade at a p-e/growth ratio of 2.5--implying a stock price of 100. He sees eBay earning 48 cents a share in 2001, 75 cents in 2002, and $1.15 in 2003.

By Gene G. Marcial

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