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Alibaba Stock: First Impressions Can Be Deceiving

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TipRanks
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E-commerce juggernaut Alibaba (BABA) posted extremely strong earnings this past quarter.

Investors may read headlines such as “Alibaba Posted its First Operating Loss as a Public Company,” and immediately look to hit the sell button. That is less than an ideal way to view the company's loss right now.

Yes, BABA stock dropped precipitously on its earnings report, and yes, downside momentum is not in the favor of investors in BABA stock.

However, Alibaba has been beaten down to a level that simply doesn’t make sense. Investors ought to give this growth stock a good hard look right now.

Incredible Earnings Highlight Alibaba’s Strong Investment Thesis

Alibaba’s recent earnings report highlighted the opportunity available to investors at an incredible discount today.

The Chinese e-commerce giant posted revenue that beat analyst expectations by a significant margin. Alibaba’s 187.4 billion RMB ($28.6 billion) revenue greatly surpassed expectations of 180.4 billion RMB. This represented a revenue growth rate of 64% year-over-year.

The bar the market set for revenue growth was high, and Alibaba pole-vaulted over this target with ease.

On the bottom line, Alibaba’s performance was indeed hindered by a massive $2.8 billion (18.2 RMB) fine for abusing its market position. The company’s net loss of 5.5 billion RMB was significantly lower than Wall Street estimates of a 6.95 billion RMB profit. However, the fine aside, Alibaba more than beat on its top and bottom line.

The fact that this fine wasn’t factored into analyst expectations led to what many view as an oversight. The fine shouldn’t have come as a surprise to the market. However, since it was issued less than a month prior to Alibaba’s earnings report, analysts may not have had the time to adjust their models and target prices accordingly.

Technicals and Fundamentals Point to Serious Value

From a technical standpoint, it’s hard to view the recent selling in BABA stock as anything other than a buying opportunity.

Indeed, this stock is now trading near the bottom of its 5-year Bollinger band range. In other words, this stock is trading near two standard deviations away from its long-term moving average. As many investors who believe in the fundamental laws of finance know, this indicates BABA stock is in some seriously oversold territory.

From a fundamental standpoint, Alibaba’s recent earnings only highlighted the growth thesis underpinning this stock. The company grew earnings at a 64% year-over-year clip. The company’s logistics business grew by 101%, its core commerce business grew by 72%, and its cloud computing division grew by 37% year-over-year.

Importantly, investors should note that Alibaba’s cloud computing segment has recently become profitable. For those considering a comparison of Alibaba to U.S. players like Amazon (AMZN), this is a good sign. Amazon’s AWS segment has become a profit-generating machine for the company. Such an outlook for Alibaba makes this stock appear really cheap at these levels.

What Analysts Are Saying About BABA Stock

According to TipRanks’ analyst rating consensus, BABA stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 25 Buy recommendations and 1 Hold recommendation.

As for price targets, the average analyst price target is $304.55. Analyst price targets range from a low of $270.00 per share to a high of $350.00 per share.

Bottom Line

There are few growth stocks investors can pick up at a forward price-to-earnings ratio of around 20 today. Given a forward revenue growth estimate of 30% for Alibaba, as per its recent earnings release, this is a stock trading well below a PEG of 1.

Alibaba is perhaps the cheapest large-cap growth pick in the market today. Investors would certainly be remiss to ignore this opportunity today.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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    (Bloomberg) -- Tritium, which makes fast chargers for electric vehicles, has reached an agreement to go public through a merger with blank-check company Decarbonization Plus Acquisition Corp. II, according to people with knowledge of the matter.The deal with the special purpose acquisition company, or SPAC, values Tritium at $1.2 billion, the people said, asking not to be identified because the information was private. The transaction is expected to generate proceeds of about $400 million, said the people.Unlike most SPAC mergers, Tritium’s combination with Decarbonization Plus II didn’t include raising a private placement, the people said.Representatives for Tritium and Decarbonization Plus II declined to comment.Brisbane, Australia-based Tritium produces charging software and hardware -- including electric pumps the size of large refrigerators -- deployed at shopping malls to highway rest stops in almost 40 countries, and has supplied networks being rolled out by Volkswagen AG and Ford Motor Co. The firm’s fastest units can add about 217 miles of driving range in 10 minutes of charging, according to the company.Founded in 2001 by members of a solar-car racing team, the company promoted ex-Boeing Co. executive Jane Hunter to chief executive officer in 2020, and has expanded beyond Australia to add design and manufacturing facilities in California and Europe. Tritium announced last month that it was selected by the U.S. Army to help its efforts to convert its vehicles -- including combat vehicles -- to electric power.Read more: Fastest Electric Car Chargers Waiting for Batteries to Catch UpAdding electric car charging infrastructure is seen as vital for automakers to spur sales, and crucial to governments as they seek to phase out combustion engine vehicles to help meet climate targets. President Joe Biden has flagged plans to spend billions of dollars on tax credits and charging stations to support the transition away from gas-powered cars.Rival supplier ABB Ltd. said last month that it plans to carve out its electric vehicle charging business into a separate legal structure and prepare the unit for a potential listing.The Decarbonization Plus SPAC is backed by an affiliate of Riverstone Holdings LLC. It raised $402.5 million including so-called greenshoe shares in an initial public offering in February.(Adds details from fifth paragraph.)More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • Chinese Chipmaker SigmaStar Weighs $780 Million IPO in Shanghai

    (Bloomberg) -- Chipmaker SigmaStar is seeking to raise at least 5 billion yuan ($780 million) in an initial public offering in Shanghai, according to people familiar with the matter, as China expands its semiconductor industry.The startup is working with advisers toward a share sale on the Nasdaq-style STAR board as soon as this year, said the people, asking not to be identified because the information isn’t public. The plan isn’t finalized and is subject to change, they said. The company targets a valuation of 30 billion yuan to 50 billion yuan, said one of the people.China’s semiconductor makers are seeking to capitalize on the government’s push to match the U.S. and become more self-reliant as global chip supply dwindles. The world’s most-populous nation wants to build a group of technology giants that can stand shoulder-to-shoulder with Intel Corp. and Taiwan Semiconductor Manufacturing Co., with Premier Li Keqiang pledging to boost spending and drive research into cutting-edge chips.Founded in 2017, SigmaStar designs chips for security systems, sports cameras, self-driving vehicles, and smart home devices, among other products, according to the company’s website. Its backers include China’s Kunqiao Capital and SummitView Capital, according to CB Insights.SigmaStar representatives didn’t immediately respond to emailed requests for comment.Shanghai’s STAR board was rolled out in 2019 as a testing ground that allowed streamlined registration-based IPOs, eased caps on valuations and price swings in the first few days of trading. More than 230 companies have debuted since then, including giants such as Semiconductor Manufacturing International Corp. and Bloomage Biotechnology Corp. China’s securities regulator is considering tighter listing rules for the trade venue, placing greater emphasis on hardcore technology and innovation, Bloomberg News reported in March.More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.

  • AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Policy to Stay the Same, but Forecasts Could Move Kiwi

    We believe the RBNZ will maintain its monetary policy settings, and highlight the improving economy.