Stock (Symbol) |
Alibaba (BABA) |
Stock Price |
$93 |
Sector |
| Retail & Travel |
Data is as of |
| December 10, 2016 |
Expected to Report |
| Jan 26 – 30 |
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) is growing very rapidly, but the fundamentals aren’t as perfect as some of the other Internet names. Alibaba posted 38% profit growth last qtr — blowing past the 24% estimate — as sales surged 55%. But afterwards, analysts didn’t up earnings estimates. They lowered them. Still, profits are expected to climb 25% in 2017. With a p/E of 29, on 2017 earnings estimates, this stock isn’t cheap nor is it expensive. One could argue this stock is worth 35 or 40 times earnings and you wouldn’t get a complaint from me. But there are things that aren’t perfect with the company. Lowering of profit estimates is one, and BABA isn’t very transparent in its financials and makes outside investments that are cloudy. On the bright side, owning Alibaba is like owning another Amazon.
BABA’s two main e-commerce sites are Tmall, China’s biggest business to consumer site, and Taobao, a consumer-to-consumer site like eBay. It also owns Youku Tudou, China’s YouTube. BABA’s cloud computing sales rose 130% last qtr, compared to core commerce sales growth of 41%, and there are now 14 Alibaba Cloud centers after the opening of four new data centers in Middle East, Europe, Australia and Japan. China remains a huge growth opportunity for investors, as only around half the people have internet access, compared to 90% in the U.S. Alibaba is a rapidly growing large cap stock that’s down a bit with money flowing into value stocks like banks and industrials. But over time profit growth leads to stock growth and I feel BABA will run higher again once investors look growth stocks once again. |
One Year Chart |
 Alibaba broke out last qtr, but the company was unable to sustain a move higher, and fell back into a base which is above the previous base. Mutual funds made big investments into BABA when the stock broke out, and I haven’t seen mass dumping of the shares. I think smart money is invested here, and that’s a good thing to have. Profit Estimates over the next 4 qtrs are 13%, 46%, 21% and 20%. BABA has beaten the street in hree of the last four qtrs, but the other qtr was a miss (the -4% qtr). |
Fair Value |
 I had a client tell me he doesn’t like BABA because he hasn’t made money in the stock. Well, that’s partially my fault from not getting him in and out at the right times. The other reason is the stock went public at a high valuation and even though profits have grown well the past two years, the stock has been stuck in a range. And from the looks of my Fair Value, BABA could remain in that range this year. The BEST stocks get high P/Es and to be the best you have to increase profit estimate during the year. Alibaba isn’t doing that. 2016 and 2017 estimates have gone from $3.38 and $4.20 four qtrs ago to $3.26 and $4.08 now. |
Bottom Line |
 Alibaba’s is growing rapidly — especially on the sales front — but the stock has been stuck in a trading range since it went public in 2014. With growth stocks our of favor now, this would be a good time to buy in if you don’t already own the stock, but you should think long-term as the stock is just slightly under my 2017 Fair Value. BABA ranks 9th in the Growth Portfolio and Aggressive Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
9 of 34Aggressive Growth Portfolio 9 of 18Conservative Stock Portfolio N/A |
