Dear Mr. Berko:

Some months ago, before eBay split 2-for-1, I was going to buy 100 shares but lost my nerve. Now it has split and I’m thinking about buying 200 shares.Please let me have the benefit of your thoughts on this stock. I can afford the risks. However, I still wonder if the stock price may be too rich.

W.P., Joliet, Ill.

Dear W.P.:

Rich is a matter of perspective, but I am reluctant to put my imprimatur on a stock speeding at 90 times earnings. Owning a stock at that multiple can be perilous, like sky diving without a parachute, drinking downstream from the herd or reneging on a mob loan.  The phenomenal revenue and earnings growth of eBay Inc. (EBAY-$55.24) has put this Internet service company on a fast track to success. EBay operates a uniquely interactive online trading community. Sellers post items they wish to sell via auction or fixed-price format, and buyers make bids for specific items or purchase items they want at the listed price. Through its PayPal service, eBay enables any customer with an e-mail account to send and receive online payments in 38 countries.

I got turned on to eBay in late 2001 when a physician client of mine wanted to purchase a first edition (U.S. printing) of Gray’s Anatomy. He spent months culling inventories of bookstores in the New England states and West Coast with scant results.  Someone suggested eBay. In two days, he found a copy in good condition in Belgium and bought it at a very fair price. A year later, I used eBay to sell my Cessna. I was delighted with the responses and results. I’ve been an eBay fan (but not a shareholder) ever since.

EBay has 92 million registered users, up 60 percent from a year ago. It carries a listing of more than 255 million items, including antiques, collectibles, art, cars, electronics, jewelry and real estate. EBay gets a piece of vigorish on each transaction.  The service is convenient and simple. From your most comfortable chair in the privacy of your home, you can buy any item your imagination will conjure with a click of the mouse and have it delivered to your home in two days. It beats searching secondhand stores or plumbing through myriad magazine and classified newspaper advertisements. Within the next 10 years, eBay may become one of the most influential companies in the world.

EBay provides you with a worldwide audience of millions of people who can respond in a flick of an eye. Nothing in the print media has this much power or can match this exposure so quickly and so inexpensively.

Last year, eBay-registered users transacted $15 billion in gross merchandise sales, generating $1.2 billion in revenues and $250 million in net income. This year, eBay’s registered users expect to transact more than $22 billion in gross sales, and its 4,000 employees should help the company earn a net profit of $410 million.

International sales account for about 30 percent of revenues. EBay has local Web sites in China, Korea, Spain, Germany, Austria, Australia, Taiwan, the United Kingdom, Belgium, Canada and France.

In 1998, when eBay first sold its shares to the public, it had $48 million in revenues and $3 million in net income. It has since mushroomed to the point that in 2004 expects revenues to exceed $2.9 billion in 2004 and to generate $685 million, or $1.20 a share, to its bottom line. The company has $25 million in debt, $570 million shares outstanding and a $9 book value.

Wall Street looks for strong continued growth in registered users, revenues and net income. Operating margins are running at 40 percent; net profit margins are more than 24 percent. Those are impressive numbers.

The stock’s performance has been equally impressive. EBay has had three splits and a purchase at a split-adjusted price in 1998 of $60 ($6,000) would be 600 shares today at $55 worth $33,000. You can’t sniff at that.

I do, however, sniff at a P/E ratio of 91 times earnings, which reminds me of the excesses of a few years ago. Though I think the shares can move higher because the stock still enjoys enormous momentum, I’m very mindful that about two years ago eBay was trading at $14.

If you decide to buy the stock today, you’ll be boarding a speeding train and at some point you may have to jump. But if you can handle the risks, then buy 200 shares and I’ll pray that your exit strategy provides for a soft landing.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.