Why the Pullback in Alibaba (BABA) is a Buying Opportunity

NYSE: BABA | Alibaba Group Holding Ltd News, Ratings, and Charts

BABA – One of the most significant trends over recent years has been the shift from retail to online sales.

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  • An excellent quarter for Alibaba
  • Amazon has a huge quarter, and Jeff Bezos buys some real estate
  • Pressure ahead for Alibaba, but a move lower would be a buying opportunity

One of the most significant trends over recent years has been the shift from retail to online sales. The first sign of the change was the shift of sales data from Black Friday, the day after Thanksgiving, to Cyber Monday, which comes after the Thanksgiving holiday weekend. In the US, these days mark the start of shopping for the holiday season each year.

Amazon.com, Inc. (AMZN) in the US and Alibaba Group Holdings Limited (BABA - Get Rating) are the two companies that dominate the e-commerce space. Together, the companies have a market cap of over $1.6 trillion and growing. Both companies recently reported fourth-quarter earnings, and Amazon (AMZN) and Alibaba (BABA) both knocked the ball off the cover, reporting EPS that was substantially above the market’s consensus estimates.

With Coronavirus weighing on China’s economy, we could see a pullback in Alibaba shares (BABA) over the coming weeks and months. Meanwhile, that would likely be a buying opportunity for the company with a smaller market cap that services the world’s most populous nation.

 

An excellent quarter for Alibaba

When Alibaba (BABA) reported its earnings for the fourth quarter of 2019, it once again beat the analyst’s projections.

(Source: Yahoo Finance)

As the chart shows, BABA reported an EPS of $2.56 per share, which beat the estimate of $2.22.   

(Source: Yahoo Finance)

After trading to a high of $231.14 per share in January, BABA was around the $212 level at the end of last week, despite the Q4 earnings beat. A survey of 48 analysts on Yahoo Finance expects a wide price range of $170.28 to $305.12, with an average of $250.99, which is above the current market price. While earnings have been bullish fuel for BABA shares, the stock could suffer from a case of Coronavirus.

 

Amazon has a huge quarter, and Jeff Bezos buys some real estate

While BABA beat the street in Q4, Amazon’s (AMZN) results was even more impressive. The consensus EPS estimated were for $4.03 per share. Meanwhile, AMZN earned $6.47 in the final quarter of 2019.

(Source: Yahoo Finance)

The chart shows that after two-quarters of missing projections, AMZN blew away estimates in Q4.  

(Source: Yahoo Finance)

At just below the $2100 per share level at the end of last week, AMZN shares were just below the all-time peak from this month at $2185.95. Forty-five analysts have an average price target of $2404.29 per share, with a range from $1850 to $2700.

Recently, Jeff Bezos, the founder of Amazon and the world’s richest person, sold around $5 billion worth of the company’s shares. He used some of the proceeds to buy the Warner estate in Beverly Hills for a cool $165 million from David Geffen.

 

Pressure ahead for Alibaba, but a move lower would be a buying opportunity

Coronavirus has caused periodic risk-off behavior in markets across all asset classes. When China comes down with an economic virus, the rest of the world often suffers financial flu. While AMZN shares could decline if the virus continues to spread, BABA shares are ground zero as the Chinese economy has ground to a halt.

As of Friday, February 21, AMZN had a market cap of around $1.044 trillion, and BABA’s stood at just below $579 billion. If the Coronavirus weighs on BABA shares over the coming weeks and months, I believe it would present a compelling buying opportunity for the e-commerce company that is best-in-class in China. BABA’s addressable market is the reason why any correction in the stock is a reason to snap up shares.

 


BABA shares were trading at $204.00 per share on Monday afternoon, down $8.59 (-4.04%). Year-to-date, BABA has declined -3.82%, versus a 0.01% rise in the benchmark S&P 500 index during the same period.


About the Author: Andrew Hecht


Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with ETFDailyNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...


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