It’s Time For An Auction: eBay Inc (EBAY) and More

No, this isn’t a cattle auction, antique auction, or even a estate auction, but there are investments that need to be sold and bought. As investors, we can spend a lot of time researching companies, trading stocks, and even wondering if we made the right decision. I heard something a few years ago that has stuck with me ever since: “If the situation you are in doesn’t reward you for your efforts, change the situation.” There are some companies that are struggling in major ways, and some companies that could change the results of our efforts.

Hewlett-Packard Company (NYSE:HPQ) is one company that shows how quickly the PC is becoming a thing of the past. If there was a “Death of the PC” movement, Hewlett-Packard would have to be the poster child. The company’s revenues fell 8% in 2012, but that pales in comparison to their stock, which has fallen 43% in the past year. In only two of the past five years has the company shown an increase in revenue. Desktops and printers were once the company’s bread and butter items, but accounted for less than 49% of the company’s revenue in 2012. If there is anything that appears positive, the stock seems to be very cheap as the company shows a 21% free cash flow (FCF) yield.

J.C. Penney Company, Inc. (NYSE:JCP)’s CEO Ron Johnson promised a “turn-around” for this company previously labeled as a retail giant. To start 2012, J.C. Penney alienated much of its customer base by no longer accepting or issuing coupons. In four of the past five years revenues have decreased, including nearly a 20% decrease in 2012. One year ago the stock was 54% higher than it is today. This probably wasn’t the “turn-around” investors were hoping for, but that’s not all. The company also suspended its dividend in May, but does show a 10.1% FCF yield.

Competition plays a large role in the success of any company, but Best Buy Co., Inc. (NYSE:BBY) may be the most glaring example. With competitors such as Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY), Best Buy is struggling to stay afloat.

While Amazon and eBay’s stocks have increased nearly 41% and 70%, respectively, Best Buy has experienced around a 39% decrease. Best Buy’s stock continued to flounder even after Richard Schulze made a bid to buy the company. Admittedly Best Buy has not seen a decrease in revenues for the past decade, but neither has eBay or Amazon.

Valuations on Amazon are often tricky, due in part to how quickly the company is growing. For a company like Amazon, FCF yields may not be the best method, as Daniel Sparks explains in a recent post. He suggests using cash from operations as an alternative valuation.