Stock (Symbol) |
Alibaba (BABA) |
Stock Price |
$71 |
Sector |
| Retail & Travel |
Data is as of |
| January 9, 2016 |
Expected to Report |
| Jan 29 – Feb 2 |
Company Description |
 BABA is a holding company. The Company is principally engaged in online and mobile commerce through products, services and technology. The Company provides retail and wholesale marketplaces available through both personal computer and mobile interfaces in the PRC and internationally. Retail marketplaces and services operated by the Company include the China online shopping destination (Taobao Marketplace); the China brands and retail platform (Tmall); the China group buying site that offers products by aggregating demand from consumers through limited time discounted sales (Juhuasuan), and the global consumer marketplace targeting consumers around the world (AliExpress). Wholesale marketplaces operated by the Company include the online China wholesale marketplace (1688.com) and the online business-to-business marketplace that focuses on global trade among businesses from around the world. Source: Thomson Financial |
Sharek’s Take |
 Alibaba (BABA) was in the low-80’s in December, and now with the global stock market rout the stock sells for $71. Last year Barron’s wrote a cover story “Alibaba: Why It Could Fall 50% Further“ and stated many of Alibaba’s outside investments (media, entertainment, cloud computing, logistics) aren’t aimed at improving profits. It also pointed out “Alibaba’s financial reports have broken free of verifiable reality”. Then in December BABA bought South China Morning Post, which is more of a political gain than a business one. BABA, like Baidu, is investing in all sorts of other things, and I feel it should focus on its business. Jack Ma has even stated it will put the interests of customers and employees ahead of shareholders. That being said, BABA’s qtrly profit growth is expected to slow from 22% last qtr to 9%, 15% and 14% the next 3 qtrs. The company hasn’t beaten estimates the past 2 qtrs and analysts have been lowering future estimates a little every qtr. Although the estimated long-term growth rate is 25%, BABA isn’t growing that fast and I think this may come down. I feel Alibaba is worth 25x earnings, and my Fair Value is $66. So is BABA a good buy now that its fallen? I don’t think so. |
One Year Chart |
 Here’s the one-year chart of BABA. Doesn’t look good. The stock still seems to be trending down. Last qtr the company had 22% profit growth on 32% sales growth. I think profits should be growing at least as fast as sales, and that management isn’t in the shareholders best interests. |
Fair Value |
 I’m taking my Fair Value on this stock down from 30x earnings to 25x. That gives the stock a Fair Value of $66 this year and $85 next year. Also, annual estimates have been declining. During the last 4 qtrs 2016’s have slumped from $3.80 to $3.38 and 2017’s from $4.81 to $4.11. Thus, my Fair Values could come down if estimates continue to decline. |
Bottom Line |
 Alibaba’s doing what it wants to do, and that’s not impressing investors around the world. The company needs to be more shareholder friendly, and not buy things like newspapers. I feel the stock’s P/E ratio will come down from 27 and earnings growth will slow. BABA will stay on my radar for now, but I’m not inclined to buy at this juncture. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
