Last week, when looking at some charts, I got an email about IAC Interactive having gained as much as Apple (AAPL) so far this year. It seemed like some type of typo when you know that IAC Interative continues to deliver sub quality websites. But it is true, both have returned between 20 and 25% and that just does not look right.
Knowing that, I tried looking for a superior company trading at a similar P/E ratio and the best fit looked liked Ebay which is looking more and more like an online bank. Competition is coming from Facebook among others but I still believe it can maintain higher growth than IAC Interactive.
Both stocks are trading close to 25$ and while IAC has been very volatile with its earnings and I just don’t think it can compete with Ebay which has been generating close to 2$ of earnings per share. I just do not see how IAC could compete with Ebay in terms of revenues, profits or growth so there is no logical reason for these two stocks to trade at similar valuations. You can take a look at the numbers for yourself.
I will be writing on Thursday or Friday about how I value Ebay, as it has changed over the past few years.
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The main points that stick out when looking at the numbers are:
-The main numbers that favor IAC are the trends and analyst ratings. I am obviously aware of the trends since that is one of the main reasons why I am entering this trade. I am a bit surprised by the analyst ratings but it’s fairly equal between the two companies so I’m not too concerned about it.
In case you are wondering, there is no P/E ratio for IAC Interactive this year, it is of course because the company has been losing money. It is expected to get back to profitability next year but still far from the more reliable Ebay. Apart from AOL, IAC is the most attractive company to short among the companies that I follow so I obviously feel very happy with this trade.