Is Alibaba Stock a Top Pick or a Dud?
Despite record sales and generally good news for this online Chinese retailer, Alibaba Group Holding Limited (NYSE:BABA) just can’t get moving in this market. While action in the broader market hasn’t been great all year long, for the most part, large-cap technology has been leading this year, but without BABA stock.
It’s a result of the China syndrome and institutional investor sentiment that’s just plain frozen with this position. Wall Street sold the initial public offering (IPO) to great fanfare, but the stock is now drifting in the absence of new buyers.
It’s not that the company isn’t producing enough good news about its business. Quarter after quarter, Alibaba is reporting material improvements in its business conditions and financials. It’s getting around the country-specific investment risk that is a problem for this particular position, but unfortunately, this is an issue that isn’t going to go away.
It’s likely going to take another quarter or two for the Street to get “comfortable” with the company, but with BABA stock bouncing off a recent 52-week low, it is an opportunity.
Chart courtesy of www.StockCharts.com
While Sales Soar, Does the Market Even Care?
Not yet, it doesn’t. The market is still digesting this IPO and investors have seemingly not decided what news is good enough to bid this position.
Alibaba isn’t a dud IPO. In fact, its shares are trading very similar to plenty of other IPOs that come to market expensively priced and well marketed by the Street. It’s not unusual at all for new listings to drift in price on the stock market. By the time the position comes to market, it’s already been sold and getting new buyers to the table is a tall order for any publicly traded company.
By the end of the third quarter of 2015, Alibaba had 386 million annual active buyers in its China retail marketplaces, which is pretty extraordinary. With multifaceted expansion plans, the company basically wants to become the retailer of everything. For example, Alibaba isn’t just selling merchandise; it’s selling groceries as well and its efforts are expanding. The company just added Chengdu, Guangzhou, Suzhou, Wuhan, and Hangzhou to its list of cities where it provides same-day delivery for groceries. These locations are in addition to Beijing and Shanghai.
The company also just opened offices in London and Milan, where it plans to market its online retail sites as a gateway for European luxury retailers to export consumer products to customers in China.
So Alibaba very much remains a large-cap growth business, but getting the company’s stock moving requires an improvement in domestic investor sentiment regarding this specific position. That will require continued growth in quarterly financials, along with more “security” that this business won’t be adversely affected by its country-specific investment risks.
BABA stock boasts tremendous turnaround potential in 2016. The business has the operating momentum and Wall Street earnings estimates for the company continue to rise.