Alibaba Group Holdings (BABA) stock is one of the "cheapest" ways to get next-level growth. There's a reason why Charlie Munger is such a raging bull on the stock, even after it went on to shed around half of its value from peak to trough.
The company has an enviable growth rate, averaging 48% in top-line growth over the past five years, with a valuation (18.8 times forward earnings and 3.8 times sales) that doesn't reflect the calibre of growth you're getting from the name. Despite the uncertainties, I remain bullish on BABA stock.
Undoubtedly, the main reason for the massive discount on the stock is not its ability to sustain such a strong growth rate, but rather the uncertain fate the company faces as Chinese politician Xi Jinping continues cracking down on dominant Chinese technology companies. Coupled with an ongoing U.S.-China trade war, there's a risk that Chinese ADRs may vanish from U.S. exchanges.
Indeed, much of the uncertainty surrounding China's regulatory environment is more than enough of a reason for investors to sit on the sidelines. With President Xi Jinping slapping Alibaba with a hefty fine and lingering delisting risks, it's not a mystery as to why Alibaba has stumbled in spite of its continued strength.
Rewards Outweigh RisksWhile there exists a high degree of risk with any American-listed Chinese stock, the potential rewards may also be lucrative. Things can still go right with U.S.-China relations, and if they do, Alibaba stock and the broader basket could quickly gain in response.
For investors who have an otherwise diversified portfolio, though, such high risks with a name like Alibaba may be worth taking. Indeed, there's a degree of speculation when it comes to even the most undervalued of Chinese stocks (think Baidu (BIDU) and its mere 8.4 times earnings multiple). Still, for those willing to invest in bets with options-like risk/reward profiles, Chinese stocks may be worth a second look.
Alibaba is an e-commerce leader that has found tremendous success with its expansion into new verticals. Indeed, the company's success has gotten the attention of Chinese regulators. Still, after having been given a harsh punishment, one has to think that the tech titan will tread cautiously to not get in Beijing's bad book once again.
In terms of network effects, few firms can match up to Alibaba as it looks to explore new growth outlets. The company is wildly profitable, with 33% in net income growth averaged over the last three years.
Wall Street's TakeAccording to TipRanks’ consensus analyst rating, BABA comes in as a Strong Buy. Out of 21 analyst ratings, 19 are Buys, 1 is a Hold, and 1 is a Sell. As for price targets, the average Alibaba price target is $239.79.
The Bottom Line on BABA StockWhile Alibaba will be walking on a fine line between growing in new markets and upsetting Beijing, at these depths, there's a considerable margin of safety to be had.
Although weaker macroeconomic conditions will weigh on China's growth over the medium-term, longer-term investors, like Charlie Munger, may have a lot to gain after enduring further near-term pain.
Indeed, the risks are high with any Chinese stock, but the odds do seem tilted on the side of the bulls.
Disclosure: At the time of publication, Joey Frenette did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.
The last few months have not been good for Chinese stocks. After sudden anti-monopolistic announcements were made by regulators, an implosion at the second largest real estate developer, and tensions flared between CEOs and Beijing, shareholders have found it hard to hang on. All of these fears coupled with an anticipated deceleration in e-commerce trends have led Chinese-based retailers to underperform the broader market.
Some of the country's largest companies saw their valuations decline in steady fashion over the last half year, interspersed with several bouts of heavy selling pressure. Many analysts saw some of these instances as overreactions by investors, and did not see the regulatory and business-related risks outweighing the foundational soundness of firms like Alibaba Group (BABA) and Pinduoduo (PDD).
After a broad sell-off last quarter, investors were left wondering when the pain would stop. By early last month, the bottom seemed to have been reached by several firms, at least for now. While analyst ratings can tell one side of the story, TipRanks’ Website Traffic tool can provide further insight.
Alibaba and Pinduoduo both rely on their digital platforms for their businesses to operate, and thus, taking a look at visits to their websites can offer more useful intelligence prior to their expected upcoming earnings reports. Let’s take a look at the current data and compare it to the pros' analyses.
AlibabaThe technology firm is one of the world's largest retailers, and by October 2020 had ridden an industry-wide wave up to its all-time highest valuation. Investors were encouraged by the anticipated IPO of Ant Group, another company founded by the same man, Jack Ma. However, soon thereafter, Ant’s IPO was blocked, and antitrust probes were opened against Alibaba for uncompetitive business practices.
BABA shares took several losses and the outspoken Ma even disappeared from public view for months. Since then, Alibaba has yet to bounce back to its all-time high and was sold off throughout 2021.
After looking through the BABA website traffic data, a dissonance in visits and share price can be identified. Over the unreported Q3 period, total device visits to aliexpress.com fell 1.53%, while the stock price declined 34.72%. Meanwhile, when comparing the year-to-date ranges of both 2020 and 2021, the analysis shows a 3.46% increase in total device visits.
The stock was covered by Alex Yao of J.P. Morgan, who wrote that he has turned “more cautious on Alibaba’s domestic ecommerce growth outlook in the coming quarters.” His explained his hypothesis on the company by detailing that regulatory shifts across several industries will catalyze a protracted deceleration in consumption.
Despite these discouraging forecasts, Yao believes the stock is undervalued and could see considerable upside if regulatory concerns stabilize. Yao rated the stock a Buy and assigned a price target of $255.
On TipRanks, BABA has an analyst rating consensus of Strong Buy, based on 19 Buys, 1 Hold, and 1 Sell. The average Alibaba price target is $239.79 per share. This target represents a potential 12-month upside of 43.75%.
PinduoduoA lesser known but similarly large-cap stock, Pinduoduo runs an online agricultural marketplace between farmers and distributors, and is the largest of its kind in China. Like BABA, the company has also been plagued by the same macro forces in the market which dragged down its peers.
PDD peaked in February 2021, but has seen a loss of about 51% since then. The innovative game-like social commerce structure of its shopping experience has attracted many consumers, although the firm has yet to turn an actual profit.
The PDD website traffic data shows a considerable divergence. Quarter-over-quarter, total device visits to pinduoduo.com rose 3.62%, while the share price declined 28.62%. When comparing the year-to-date ranges of 2020 and 2021, total estimated visits have fallen 11.12%.
Remarking on the stock in his report, Eddy Wang of Morgan Stanley asserted a bullish opinion. He argued that Pinduoduo is leading China in users to its e-commerce platform and has been actively disrupting the industry. The analyst also commended PDD’s business model, which engages its user base for extended periods of time.
Wang rated the stock a Buy, and provided a $130 price target.
On TipRanks, PDD has an analyst rating consensus of Moderate Buy, based on 6 Buy and 3 Hold ratings. The average Pinduoduo price target is $128.56 per share. This target suggests a possible 12-month upside of 35.33%.
Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.