Is Alibaba Stock About to Take Off in This Market?
In a slow-growth world, economies of scale are key. Alibaba Group Holding Limited (NYSE:BABA) has it in spades, but what does this mean for BABA stock?
When economies slow down, either due to the natural business cycle or some kind of shock, both consumers and companies baton down the hatches and clamp down on spending. However, like we saw after the recent 2008–2009 recession in the U.S. economy, certain companies tend to flourish as spending patterns shift downward to accommodate a new economic reality (the strong performance of discount retailer TJX comes to mind).
Alibaba stock is a relatively new listing and the Street is still getting a feel for this position. The stock is a 100% risk-capital security, even though it’s worth around $200 billion on the New York Stock Exchange.
Like so many initial public offerings (IPOs), BABA stock drifted after listing, but with a number of strong quarters behind it now, I think this position is a worthy trade to consider for medium-term speculators. It’s a risk-capital position for the next several years.
The chart for BABA stock is featured below:
Chart courtesy of www.StockCharts.com
Is Alibaba stock about to take off on the stock market? Anything is possible, but I’d say not likely. More so, I see this position moving incrementally, but outperforming the S&P 500 index, as this stock trades on its own particular fundamentals and risks.
What I do see happening, even as Chinese economic growth slows, is Alibaba continuing to vigorously pursue its goal of becoming the online retailer of everything in greater China. Alibaba’s sales and earnings growth outlook continues to be robust.
Is This a Hindrance to Alibaba Stock?
Frankly, it is right now and with a new interest rate cycle on the horizon, my outlook for U.S. equities is very modest for 2016, albeit with the expectation that corporate financials should improve over 2015, even with the stronger dollar.
For Alibaba specifically, I wouldn’t be surprised at all if this Chinese retailer uses its currency (its common shares) to go on a U.S. spending spree of its own. Large-cap Chinese companies have a history of this. They love picking off the world’s great brands, fulfilling a business strategy that involves a time horizon for investment greater than the next quarter.
Alibaba stock has tremendous potential going forward, so long as the company keeps producing solid comparable growth and there’s no country-specific shocks or policy decisions that could potentially derail one of the company’s business strategies. As the online retailer of seemingly everything in the greater China region, this business just may be a good diversification tool for a portfolio of domestic holdings.
BABA stock has done a good job of bouncing off its 52-week low set just a couple of months ago. Highly liquid and with a big Street following, current estimates for sales in Alibaba Group Holding Limited’s next fiscal year call for an acceleration of comparable growth.