Dear Mr. Berko:

I think I would like to buy 75 shares of eBay Inc. for my Roth individual retirement account. Please give me your advice.

R.O. Gainesville, Fla.

Dear R.O.:

EBay Inc. (EBAY-$113.80) is one of the few issues that have bragging rights to success on the Internet. The company owns, markets and operates an online trading community on the World Wide Web.

Without leaving home, you can buy or sell a 1965 red Ford Mustang convertible, a 4,000-year-old Mesopotamian scroll, country-cooked hams, a teddy bear collection, every issue of Playboy magazine and practically anything that can be wrapped, boxed and delivered.

EBAY was a success from the moment it went public in September 1998. The company grossed $47 million in those few months and was shockingly disparaged by its peers because it posted a profit of 4 cents a share. The shares exploded to $52, or 1,300 times earnings.

In 1999, EBAY’s revenues soared to $247 million and since then have continued their ride, reaching $748 million in 2001.

EBAY has a user-friendly platform. A buyer in Oshkosh, Wis., strokes his laptop and in milliseconds connects to someone in Walla Walla, Wash., who wants to sell her 120-piece Barbie doll collection. If an agreeable price is reached, the transaction is a done deal. The money transfer is handled by PayPal, EBAY’s online bill-paying service, without bother.

EBAY is simple. You shop the world without getting off your gluteus maximus. Just a few clicks of the keys and EBAY puts you in touch with 69 million potential buyers and sellers.

Last year, with $1.2 billion in revenues, EBAY earned 85 cents per share and traded in the mid-$60s, or about 75 times earnings. The number of registered users has grown to 69 million from 46 million in March 2002.

The company hosted 220 million listings, up from 138 million last year. Those listings for the first quarter totaled more than $7 billion in gross merchandise sales versus $4.6 billion in the fourth quarter of 2002.

Meanwhile, EBAY’s international business continues to grow, accounting for 25 percent of 2002 revenues. The company has almost no debt, and its 317 million shares outstanding give it a market capitalization of about $36 billion.

Some EBAY watchers think the company’s market cap should be $42 billion, which puts the price at $132 a share. They point out that EBAY’s organic growth is strong, that its marketing program continues to enjoy enormous success and that management is also growing the company via acquisitions.

Several years ago, EBAY bought Half.com, a fixed-price marketplace to buy and sell used items at discount prices. Today, Half.com is one of the Internet’s most popular e-commerce destinations. Two years ago, the company bought Auction Co. Ltd., Korea’s largest auction-style Web site. In March 2001, it bought iBazar, an auction company with marketplaces in Europe.

In April 2002, EBAY bought NeoCom Technology, Taiwan’s leading auction Web site, and in May 2002, it bought EachNet, the leading online Chinese trading company. Then in October, EBAY paid $1.5 billion for PayPal, which allows any business or consumer to send and receive payments online. PayPal’s network is available in 38 countries.

I think we can expect more acquisitions. Margaret Whitman, who runs this company, is a genius with excellent future vision. She’s a good communicator and a superb numbers person. There isn’t a stick about the way EBAY is managed that I find lacking. Baring unexpected events, revenues and earnings probably will continue to experience significantly above-average growth.

But I’m wary of EBAY’s high price/earnings ratio. With expected 2003 per-share income of $1.25, EBAY trades at 91 times earnings. There are 17 suits on Wall Street who follow EBAY, and 13 rate it as a “buy.” I think they’d rather snuffle dollars from their mamas then rate EBAY a “hold.” I understand their enthusiasm.

EBAY may move higher, but if you buy it at 91 times earnings, beware. In the past 12 months, the stock has ranged from $50 to $114, and at this lofty juncture, I’m certain that the potential gains are not worth the risk.

By all reasonable standards in any reasonable environment, reasonable investors would never pay 91 times earnings for any stock. Don’t buy it.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or visit his Web site at www.berkoradio.com.