BABA Stock: Here’s What the Bears Missed About Alibaba Group Holding Ltd

BABA StockAlibaba Group Holding Ltd (NYSE:BABA) stock hasn’t really been a hot commodity these days. Despite posting great results one quarter after another, Alibaba stock is still in the doldrums. However, if you take a look at what the company has been up to lately, you’ll see that the stock could represent significant value.

Alibaba Stock: 3 Trillion GMV, Surpassing Wal-Mart

Trading at $78.68 apiece, BABA stock has a price-to-earnings multiple of 19. The stock started a downward journey not long after its initial public offering. But it’s not like there has been that much trouble with Alibaba’s fundamentals: in the past four quarters; the company beat Wall Street’s earnings per share (EPS) estimates every single time. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 6, 2016.)

Everybody knows that Alibaba is the dominant player in China’s e-commerce business sector. But with competition from companies like Inc (NASDAQ:JD), investors have been worried that the king of the hill has nowhere to go but down. And it doesn’t help that China’s economic growth is showing signs of a slowdown.

The company made a huge promise a few years back, when it was still private. In 2012, Alibaba’s gross merchandise volume (GMV) reached one trillion yuan. At that time, the company set an ambitious target to triple its GMV to three trillion yuan by 2016.

With the Chinese economy being what it is today, you might not think that Alibaba can reach that goal. But guess what? It just did.

Last month, Alibaba said that GMV for its China retail marketplace has surpassed three trillion yuan, or $476.0 billion. If you think of it as a province, Alibaba’s platform would rank as the sixth largest provincial economy in China. (Source: “First Alizila Executive Blog Post Joe Tsai Looks Beyond Alibaba’s RMB 3 Trillion Milestone,” Alibaba Group Holding Ltd, March 21, 2016.)

The three trillion yuan target is not the only milestone reached by the Chinese e-commerce giant. By the end of Alibaba’s fiscal 2016, which ended on March 31, the company overtook Wal-Mart Stores, Inc. (NYSE:WMT) to become the largest retailer in the world based on GMV. (Source: “Alibaba Group Has Become the Largest Retail Economy in the World,” U.S. Securities and Exchange Commission, April 5, 2016.)

Alibaba is not done here. In fact, it’s just getting started. After hitting the three trillion yuan target, Alibaba’s CEO Daniel Zhang said that the company has set a new goal of achieving annual trading volume of six trillion yuan by 2020. (Source: “Alibaba Becomes the World’s Largest Retailer,” China Daily, April 6, 2016.)

Since Alibaba is already so huge, you might be wondering just how it could grow its business further. Well, as it turns out, there is a huge market in China that Alibaba has yet to tap into.

The market is rural China. Right now, Alibaba’s rural “Taobao Marketplace” e-commerce initiative has been launched in 12,000 of China’s 600,000 villages. While this is certainly an achievement, there is still a lot more to be done. Many of these 600,000 villages have large populations and could potentially become sizable markets for vendors on Alibaba’s e-commerce platform. If penetration were to increase, the company could see a substantial increase in its GMV.

The Bottom Line on BABA Stock

Let’s not forget that Alibaba is much more than just e-commerce these days. Its cloud service business is gaining momentum, and it has just completed the acquisition of “Youku Tudou”—one of the largest video streaming platforms in China.

Bottom line, BABA stock could have a lot of potential to realize in the future.