The Wall Street Journal’s Spencer Jakab wonders why Sotheby’s stock is languishing far below the level it attained during Daniel Loeb’s proxy fight and trailing the S&P. Pulling back a bit in time shows why the stock trades below the peak of the proxy fight. Those expectations where untenable. Even at today’s reduced price, Jakab sees 17-times earnings as a fair price for a cyclical stock that faces an inevitable market retrenchment:

Analysts expect Sotheby’s on Friday to report earnings per share of $1.40 for the second quarter, up from $1.33 in the same period a year before. That is about what was predicted last fall.

A more likely reason concerns long-term expectations. Despite inking an agreement with eBay Inc. EBAY to sell Picassos alongside Pikachus, the ebb and flow of the auction business is tied to the fortunes of rich people. In booming 2007, for example, Sotheby’s and Christie’s had a combined $11 billion in auction sales. Two years later, these were less than half as much amid a global recession.

The impact on a business with bills to pay rain or shine is stark. Sotheby’s fell to a per-share loss of 10 cents in 2009 from a profit of $3.25 in 2007. Likewise, between frothy 1999 and rocky 2002, the bottom line fell from a profit of 56 cents a share to a loss of 89 cents.

One benefit of tomorrow’s earnings release is that the stock has jumped above the $40 threshold in anticipation. Let’s see if it can stay there.

AHEAD OF THE TAPE: Don’t Expect a Bargain at Sotheby’s  (WSJ)