I think we can agree that EBAY is perfectly priced; however, if you are seeking Growth At a Reasonable Price (GARP) or good Value, then you are likely not interested in EBAY (the stock). Perfect pricing suggests that in order to stay invested the investor is willing to take all the risk. For buy-and-hold investors, that's probably not a good idea.

Now you do know that risk can be an open-ended subject. There are risks related to the stock market prices, credit/solvency, independent business valuation, and management performance, among others. In fact, if you are a classic worrier, the list of risks becomes endless.

But the skinny on risk is that the more of it, the shorter ought to be your hold period.

Since I like EBAY's biz model, and I know EBAY has millions of happy customers, I am prepared to trade the stock. However, in my book I cannot find it in me to more than day trade a stock that has a price-to-earnings multiple north of say four times the S&P multiple.

Since EBAY trades at something like a 111 PE, my time horizon for long trades is measured in minutes, possibly hours. Even with short trades, my window would be hours to days, but never weeks.

Simply put, the risk of "news" is too great for me to accept. A lot of market news, you know (or ought to in case you don't), is fabricated in order to cause you to buy or sell stocks.

Since I'm not in the room (with these "news" creators), I'm out of the deal. In that regard, I'm just like you; when the spin begins, you and I are not privileged to know which way the stock is headed.

I've always been impressed with one of Wall Street's classic worriers, Marty Zweig, and I know him to be a Growth-oriented investor, so when I saw him Friday evening in the CNBC Tribute to Louis Rukeyser, it came to mind I should look up his Guru criteria for EBAY, which is on the Nasdaq.com site.

According to the Nasdaq profile: "Martin Zweig is a growth investor with a serious conservative streak. A renowned money manager, newsletter writer and frequent guest on the PBS television series "Wall Street Week," Zweig knows that money lost is money that's hard to recoup. Accordingly, he searches for stocks that meet a long host of earnings criteria. Quarterly earnings, for example, should be positive and growing faster than they were (a) a year ago, (b) in the preceding three quarters, and (c) over the preceding three years. Annual earnings should be up for at least the past five years. And sales should be growing as fast as or faster than earnings, since cost-cutting and other non-revenue-producing measures alone can't support earnings growth forever. Finally, Zweig suggests that companies have a price-to-earnings ratio of at least 5—to weed out weak companies—but no more than three times the current market p/e or 43, whichever is lower. His strategy makes sense for investors who like the potential of growth companies but aren't willing to pay premium prices for them."

BTW, I once met Marty Zweig, at an investment conference in New Orleans, and he told me he hated to travel, where he had to get on a plane and leave his (then young) family at home. He struck me as being one of the real nice guys on Wall Street, of which, in spite of my rants, I know there are many. And honest ones, too.

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For EBAY, here is the Nasdaq Guru Report Card for Martin Zweig:

P/E RATIO: [FAIL]
REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS]
SALES GROWTH RATE: [FAIL]
CURRENT QUARTER EARNINGS: [PASS]
QUARTERLY EARNINGS ONE YEAR AGO: [PASS]
POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS]
EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL]
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS]
EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL]
EARNINGS PERSISTENCE: [PASS]
LONG-TERM EPS GROWTH: [PASS]
TOTAL DEBT/EQUITY RATIO: [PASS]
INSIDER TRANSACTIONS: [PASS]

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Detailed Analysis

Guru Score: 62%

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P/E RATIO: [FAIL] The P/E of a company must be greater than 5 to eliminate weak companies, not more than 3 times the current Market P/E because the situation is much too risky, and never greater than 43. EBAY's P/E is 111.52, based on trailing 12-month earnings, while the current market P/E is 24.00. Therefore, it fails the first test.

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REVENUE GROWTH IN RELATION TO EPS GROWTH: [PASS] Revenue Growth must not be substantially less than earnings growth. For earnings to continue to grow over time they must be supported by a comparable or better sales growth rate and not just by cost cutting or other non-sales measures. EBAY's revenue growth is 79.01%, while it's earnings growth rate is 112.94%, based on the average of the 3, 4 and 5-year historical eps growth rates. Sales growth is not at least 85% of EPS growth so the initial part of this criteria is not met, however, since both sales growth and eps growth are greater than 30%, that requirement is waived and the company passes this test.

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SALES GROWTH RATE: [FAIL] Another important issue regarding sales growth is that the rate of quarterly sales growth is rising. To evaluate this, the change from this quarter last year to the present quarter (51.8%) must be examined, and then compared to the previous quarter last year compared to the previous quarter (51.9%) of the current year. Sales growth for the prior must be greater than the latter. For EBAY this criterion has not been met and fails this test.The earnings numbers of a company should be examined from various different angles. Three of these angles are stability in the trend of earnings, earnings persistence, and earnings acceleration. To evaluate stability, the stock has to pass the following four criteria.

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CURRENT QUARTER EARNINGS: [PASS] The first of these criteria is that the current EPS be positive. EBAY's EPS ($0.27) pass this test.

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QUARTERLY EARNINGS ONE YEAR AGO: [PASS] The EPS for the quarter one year ago must be positive. EBAY's EPS for this quarter last year ($0.16) pass this test.

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POSITIVE EARNINGS GROWTH RATE FOR CURRENT QUARTER: [PASS] The growth rate of the current quarter's earnings compared to the same quarter a year ago must also be positive. EBAY's growth rate of 68.75% passes this test.

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EARNINGS GROWTH RATE FOR THE PAST SEVERAL QUARTERS: [FAIL] Compare the earnings growth rate of the previous three quarters with long-term EPS growth rate. Earnings growth in the previous 3 quarters should be at least half of the long-term EPS growth rate. Half of the long-term EPS growth rate for EBAY is 56.47%. This should be less than the growth rates for the 3 previous quarters, which are 50.00%, 87.50% and 100.00%. EBAY does not pass this test, which means that it does not have good, reasonably steady earnings.This strategy looks at the rate which earnings grow and evaluates this rate of growth from different angles. The 4 tests immediately following are detailed below.

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EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN PRIOR 3 QUARTERS: [PASS] If the growth rate of the prior three quarter's earnings, 79.55%, (versus the same three quarters a year earlier) is greater than the growth rate of the current quarter earnings, 68.75%, (versus the same quarter one year ago) then the stock fails, with one exception: if the growth rate in earnings between the current quarter and the same quarter one year ago is greater than 30%, then the stock would pass. The growth rate over this period for EBAY is 68.8%, and it would therefore pass this test.

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EPS GROWTH FOR CURRENT QUARTER MUST BE GREATER THAN THE HISTORICAL GROWTH RATE: [FAIL] The EPS growth rate for the current quarter, 68.75% must be greater than or equal to the historical growth which is 112.94%. Since this is not the case EBAY would therefore fail this test.

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EARNINGS PERSISTENCE: [PASS] Companies must show persistent yearly earnings growth. To fulfill this requirement a company's earnings must increase each year for a five-year period. EBAY, whose annual EPS growth before extraordinary items for the previous 5 years (from the earliest to the most recent fiscal year) were 0.02, 0.09, 0.16, 0.43 and 0.68, passes this test.

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LONG-TERM EPS GROWTH: [PASS] One final earnings test required is that the long-term earnings growth rate must be at least 15% per year. EBAY's long-term growth rate of 112.94%, based on the average of the 3, 4 and 5 year historical eps growth rates, passes this test.

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TOTAL DEBT/EQUITY RATIO: [PASS] A final criterion is that a company must not have a high level of debt. A high level of total debt, due to high interest expenses, can have a very negative effect on earnings if business moderately turns down. If a company does have a high level, an investor may want to avoid this stock altogether. EBAY's Debt/Equity (2.00%) is not considered high relative to its industry (85.33%) and passes this test.

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INSIDER TRANSACTIONS: [PASS] A factor that adds to a stock's attractiveness is if insider buy transactions number 3 or more, while insider sell transactions are zero. Zweig calls this an insider buy signal. For EBAY this criterion has not been met (insider sell transactions are 20, while insiders buying number 3). Despite the fact that insider sells out number insider buys for this company, Zweig considers even one insider buy transaction enough to prevent an insider sell signal, therefore there is not an insider sell signal and the stock passes this criterion.

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As for me, if you wish to delve right into the investment analysis, here is the info I have on EBAY. I am impressed with the profit margins, etc (who wouldn't be?), but I cannot overlook the almost 1500 times price-to-free cash flow multiple, and the fact that sales and earnings growth in recent quarters is not up to historical averages.

EBAY is a super company but, at any point in time (usually to start a day, right after the close the night before when this group has taken protective put/call option positions), investors could get hammered by a change in tactics by a large Wall Street or foreign capital trading pool (say five or ten houses working together).

Of course these "raids" are not supposed to happen in "free" markets, but they do!

What I might do, if I were long the stock is to write short-term (3 to 4-month) calls whenever I thought the stock was technically over-bought, and to write short-term puts (prepared to buy the stock at much lower prices if the stock was put to me) whenever I thought the stock was technically over-sold.

After a big run up on Dec. 28 at the open and near the close, and at the open on the 29th, the %K STO and MACD rolled over. That would have been a good time to write the calls.

Unfortunately trading is not a matter of "woulda, coulda, shoulda", so you have to know in advance what your position is, both strategically and tactically, and then wait for these conditions to present themselves in markets.

That's the only way you are going to outwit the brilliant minds and computer programmed trading models on Wall Street.

One thing is for sure; when you see an average trading daily volume of 9 million shares (in the $100 price range), which means the average daily trading value is close to $1 billion, then you know Wall Street is all over the stock.

And if you think you are going to beat Wall Street, you had better be pretty good at the trading business.

BCara@BillCara.com

This info is also being published by this weekend's Roundtable at Levi Bauer's weblog called Soothsayer Of Omaha. Levi is a young (relatively speaking since he's between the ages of my son and daughter) mid-west USA healthcare analyst who has taken quite an interest in trading blogs and RSS. I encourage you to follow him, and the other writers of the Roundtable.