Alibaba Group Holding Limited (BABA) operates as a technology infrastructure provider and offers marketing reach to businesses with their users and customers. The company operates through its Core Commerce; Cloud Computing; Digital Media and Entertainment; and Innovation Initiatives and Other segments. It is based in Hangzhou, China.

Return on capital employed (ROCE) came in at 7.2% for BABA, indicating a low return. However, the company’s capital employment and revenue have increased, indicating business growth.

Over the past year, BABA’s stock declined 48% to close its last trading session at $118.73. It has gained 27.1% over the past month and 11.6% over the past five days.

Here are the factors that could affect BABA’s performance in the near term:

Mixed Financials

For the fiscal quarter ended March 31, BABA’s revenue increased 8.9% year-over-year to $32.19 billion. Income from operations came in at $2.64 billion, up substantially from its negative year-ago value. On the other hand, non-GAAP net income and non-GAAP earnings per ADS decreased 24.5% and 23% from the prior-year period to $3.12 billion and $1.25.

Mixed Profit Margins

BABA’s trailing-12-month EBITDA margin, net income margin, and levered FCF margin of 15.74%, 7.30%, and 6.78% are 29.9%, 14.1%, and 99% higher than the respective industry averages of 12.11%, 6.39%, and 3.41%.

However, its trailing 12-month ROE, ROTC, and ROA of 6.57%, 4.73%, and 3.67% are 61.4%, 35.2%, and 33.8% lower than the industry averages of 17.02%, 7.31%, and 5.54%, respectively.

Mixed Analyst Expectations

The consensus EPS estimate of $1.54 for the quarter ending June 2022 indicates a 40.1% year-over-year decrease. Likewise, the consensus revenue estimate for the same quarter of $30.61 billion reflects a decline of 5.5% from the prior-year quarter.

However, Street EPS estimate for fiscal 2024 of $8.86 reflects a rise of 20.2% year-over-year. Likewise, Street revenue estimate for the same year of $155.60 billion indicates an improvement of 13.2% from the prior year.

POWR Ratings Don’t Indicate Enough Upside

BABA has an overall rating of C, equating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BABA has a Growth grade of C in sync with its mixed financial growth in the last reported quarter.

The stock has a C grade for Sentiment and Quality, consistent with mixed analyst sentiments regarding the stock and its mixed profit margins.

Click here to see the additional POWR Ratings for BABA (Stability, Value, and Momentum).

In the 41-stock China industry, BABA is ranked #26. View all the top-rated stocks in the China industry here.

Bottom Line

The company’s top-line growth is promising. However, its bottom line has declined in its most recent quarter. Moreover, the stock is trading above its 50-day moving average but below its 200-day moving average. Also, with analysts expecting the company’s revenue and EPS to decline in the ongoing quarter, I think it might be wise to wait for a better entry point in the stock.

How Does Alibaba Group Holding Limited (BABA) Stack Up Against its Peers?

While BABA has an overall POWR Rating of C, one might consider looking at its industry peers, Fuwei Films (Holdings) Co., Ltd. (FFHL), which has an overall A (Strong Buy) rating, and NetEase, Inc. (NTES) and FinVolution Group (FINV), which have an overall B (Buy) rating.

BABA shares were trading at $116.90 per share on Tuesday afternoon, down $1.83 (-1.54%). Year-to-date, BABA has declined -1.59%, versus a -18.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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