Often touted as the “Amazon of China”, Alibaba Group Holding Ltd (BABA) needs no introduction. Founded in 1999, the company operates through Alibaba, Taobao, and Tmall. Its cloud computing arm Alibaba Cloud, is already dominating in China is expected to turn profitable by March 2021. BABA’s gross merchandise volume increased 26% year-over-year from the 11.11 Global Shopping Festival and was reported to be more than $74 billion.

Even though BABA has gained 23% year-to-date, it dipped owing to growing regulatory measures by the Chinese Government in order to restrict the monopoly power of tech giants. The stock fell 14.8% since hitting its 52-week high in End-October. The news of the suspension of Ant Group’s IPO in which BABA has a 33% stake in, also acted as a blow to the stock. These, combined with several other factors have made our proprietary ratings system rate BABA as “Neutral.”

Here is how our proprietary POWR Ratings system evaluates BABA:

Trade Grade: C

BABA is currently trading lower than its 50-day moving average of $295.48, but higher than its 200-day moving average of $254.62. Moreover, BABA has gained just 2.8% over the past three months.

BABA’s total revenue increased 30% year-over-year to $22.8 billion for the quarter that ended September 2020. Cloud Computing revenue increased 60% year-over-year to $2.2 billion. Annual active consumers increased by 2% sequentially to 757 million. EPS increased 37% year-over-year to $0.33.

BABA entered into a global agreement with Farfetch and Richemont on November 5^th to accelerate the digitization of the luxury industry. This was done to increase its market reach and thrive in a post-COVID world. Cainiao Aeropolis eWTP Hub, a joint venture between BABA and Malaysia Airports commenced operations on November 3^rd. It is expected to help facilitate 24-hour delivery within Malaysia for e-commerce operators, and 72-hour delivery to the rest of the world.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, BABA is poorly positioned. The stock is currently trading 22.4% below its 52-week high of $319.32, which it hit on October 27^th.

The company’s net revenue grew at a CAGR of 43.7% over the past three years, while EBITDA increased at a CAGR of 19.8% over the same time period. Also, diluted EPS increased at a CAGR of 27.3% in the past three years.

Peer Grade: B

BABA is currently ranked #15 out of 115 stocks in the China group. Other popular stocks in the China group are JD.com, Inc. (JD), iQIYI, Inc. (IQ), and Baidu, Inc. (BIDU).

JD and IQ beat BABA by gaining 161.4% and 26.5% year-to-date, respectively, while BIDU returned 14.8% over this period.

Industry Rank: B

The China group is ranked #23 out of the 123 StockNews.com industries. While several economies are still struggling to cope with the growing number of cases of coronavirus, the Chinese economy has been able to recover faster and bring the virus under control. With the economy gradually growing, stocks in this group are expected to perform well in the near future.

Overall POWR Rating: C (Neutral)

BABA is rated “Neutral” due to its bleak near-term prospects and modest short-term price performance, despite having positives such as strong affiliates and strong sales during the holiday season, as determined by the four components of our overall POWR Ratings system.

Bottom Line

BABA has the potential to soar in the upcoming months despite gaining 23% so far this year. Even though the stock dipped owing to strict regulatory controls and the temporary suspension of the IPO of Ant Group, the stock is expected to soar based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

It has an average broker rating of 1.05, indicating favorable analyst sentiment. Out of 53 Wall Street analysts that cover the stock, 51 rate it a “Strong Buy.” Moreover, BABA has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $32.63 billion for the quarter ending December 2020 indicates 60.7% growth from the same period last year. Its EPS is expected to grow at 20.5% next year. However, given the recent setbacks, investors should wait for a better entry point.

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BABA shares were trading at $258.83 per share on Monday afternoon, down $2.01 (-0.77%). Year-to-date, BABA has gained 22.03%, versus a 13.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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