For a while, eBay (NASDAQ:EBAY) and Yahoo! (NASDAQ:YHOO) were classic no-decision growth stocks. They provided an unbeatable combination: fast and reliable growth.
These were stocks you could -- in good conscience -- recommend to your grandmother. Well, maybe. And some may argue that Google (NASDAQ:GOOG) could be entering this category. The company is growing fast and seems to have incredible pricing power.
But markets have a way of throwing curve balls. And, of course, recently eBay has been a bad-decision stock for the bulls. After reaching a high of $118.42 last year, it now trades at $78.99.
The operative question: Is the big growth over? Well, the company's latest quarterly report does show a slowdown.
To capture growth, the company needs to dominate new foreign markets. It also needs to keep customers happy -- a quality tested recently with a price hike that was quickly rescinded as some fled to competitors such as Overstock.com (NASDAQ:OSTK).
eBay is also paying a high price to remain competitive, whether through infrastructure investments (such as with PayPal and operations in China), as well as acquisitions.
In fact, the recent acquisitions may shed light on the views of eBay insiders regarding the value of the stock. How? First, some background. Regardless of Sarbanes-Oxley, there are major benefits of being a public company, especially the ability to use stock as currency for acquisitions. If a company is using mostly stock to buy companies, this is an indication that it thinks its stock price may be, well, overvalued.
Interestingly, eBay used its stock aggressively last year for its M&A deals. One case: Rent.com, which is a portal for leasing properties. In December, eBay agreed to purchase the company for $415 million, with only $30 million in cash (the deal was within a few weeks of the company's stock hitting a 52-week high).
Since then, eBay's stock plunged more than 30%, thus reducing the value of the deal commensurately. Typically, when this happens, there is a clause in the merger agreement that adjusts the value of the transaction. In many cases, the buyer will issue more shares to make up for the loss.
This week, eBay filed an 8-K with the Securities and Exchange Commission, indicating that it will indeed change the terms of the deal. The result? Now, eBay is going to pay $415 million in cash.
While it is never a good idea to buy a stock based on a single factor (or, to believe that there is such a thing as a one-decision stock), the fact that eBay is now paying all cash is a signal that -- at least internally -- management thinks cash is cheaper than giving away stock. In other words, management probably considers its stock price undervalued.
Fool contributor Tom Taulli owns shares in eBay. The Fool has a disclosure policy.
