I am bullish on Alibaba (BABA). The stock has sunk 32.3% over the past six months, presenting a good opportunity for buy-the-dip investors.
Alibaba is a leading B2B and B2C e-commerce company. The global e-commerce industry’s market size this year is $4.9 trillion, and is expected to reach $7.4 trillion in 2025.
Alibaba is currently trading at a 51% “discount” from its 52-week high of $319.32, suggesting that this could be a good time to go long on the stock. (See Alibaba’s stock charts on TipRanks).
BABA Is Undervalued
Alibaba deserves a spot in your long-term growth-at-reasonable-price, or GARP, portfolio. This stock’s forward P/E ratio is only 13.7x.
That’s lower than Amazon (AMZN) 51.2x, Etsy (ETSY) 59.9x, and Shopify (SHOP) 226.5x.
GARP investors should exploit this asymmetrical bias against Alibaba.
China Headwind is Temporary
Investors are overreacting to Alibaba’s regulatory problems as co-founder Jack Ma will eventually be forgiven by President Xi Jinping.
BABA’s Stochastic Oscillator score is 49.7. This technical indicator is hinting that investors are undecided, or on the sitting-on-the-fence mode.
Alibaba is Very Profitable
Based on the chart below, BABA deserves more love from investors. Its EBITDA margin is 20%, gross margin is 40%, and net income margin is 19.25%. Alibaba has better profitability stats than Amazon.
(Source: Motek Moyen)
The growing profitability of Alibaba is why it has a Piotroski F Score of 7. This categorizes it as a strong value stock.
Wall Street’s Take
Wall Street analysts consider Alibaba a Strong Buy, based on 22 Buys, one Hold, and one Sell. The average BABA price target is $269.18, implying 73.5% upside potential.
Conclusion
Hyper-growth attributes, and growing profitability make Alibaba a very attractive investment.
This company’s undervaluation relative to its peers is an opportunity warrants attention.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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