Large-Cap Internet Powerhouse to Test Wall Street Shortly
Alibaba Group Holding Ltd. (NYSE:BABA) stock is its own story. Like many new initial public offerings (IPOs), it takes a while for new and prospective shareholders to get “comfortable” with the position. Here’s what you need to know about BABA stock in 2016.
Alibaba is a play on Greater China. It may take some time for this story to play out, but the company is well on its way to becoming China’s Internet/media/e-commerce destination for virtually all goods bought and sold.
In a very real sense, this business is its own exchange-traded fund (ETF) with a multifaceted business strategy to capture and host e-commerce in the Greater Chinese marketplace. As part of a diversified equity portfolio, Alibaba stock could be one specific play on China’s future economic advancement.
Naturally, it is a 100% risk-capital equity security.
Alibaba actually reports quite a bit of material news regularly. The company is making acquisitions, it’s setting up entrepreneur funds, and it’s expanding globally, with new gateways for Western products to be sold in China.
Third-quarter sales for 2015 (ended September 30, 2015) grew 32% comparatively to US$3.49 billion. Chinese retail commerce accounted for 78% of total quarterly revenues, representing growth of 35% over the third quarter of 2014.
What I like about BABA stock is that it’s profitable—and not just slightly more than breakeven. This business makes money.
Third-quarter non-GAAP earnings improved 36% to $1.46 billion (GAAP earnings had one-time gains). The company also has lots of cash in the bank from its recent IPO.
Plus, the company’s businesses continue to grow, getting close to employing 40,000 workers globally.
The company’s 18-month stock chart is featured below:
There are two things the Street wants from this company:
- It has to meet or beat consensus with its quarterlies
- It has prove that its country-specific investment risk (i.e., government policy) won’t derail its business
BABA stock is a highly liquid large-cap whose American depositary shares (ADS) trade on the New York Stock Exchange (NYSE).
This business is registered in the Cayman Islands and falls under the jurisdiction of the U.S. Securities & Exchange Commission (SEC). However, it also falls under the jurisdiction of Chinese authorities and regulators, which is something to keep in mind if considering BABA stock as an investment.
The Bottom Line on BABA Stock
I can’t repeat this enough, though: this stock should be considered a 100% risk-capital security. It just happens to be worth around $200 billion currently.
When Alibaba stock originally listed, it initially did very well. Then it drifted, which is no surprise for an IPO. New listings often come to market expensively priced and already sold to the marketplace. With a lot of hype already built into its share price, the position drifted in the absence of buyers. It eventually bottomed at just less than $60.00 a share, but has since recovered nicely.
I would give BABA stock one more quarter to prove itself to the marketplace. If it delivers what the Street is looking for, I see no reason why this stock won’t do well over the next several years.
(Please note that this is not a buy recommendation; rather, it is meant to be an example of the type of turnaround stock investors could consider for 2016.)