What Everyone Has Missed About Alibaba Stock
China’s slowdown in economic growth is the #1 argument that Alibaba Group Holding Ltd (NYSE:BABA) stock bears like to use. They say that since the company is so dominant in the Chinese e-commerce market, any slip of the country’s economy would be detrimental to its business and, consequently, to Alibaba’s stock price.
Alibaba stock bears had their laugh but now, they are eating their words. Since February 11, BABA stock has surged 31.8%, from $60.57 to $79.87 per share. The climb is particularly impressive given the company’s nearly $200-billion market cap.
Note that even after its huge rise, Alibaba stock is still not expensive. Trading below $80.00 per share, the company has a trailing price-to-earnings (P/E) multiple of 19.33X. Looking ahead, Alibaba stock has a forward P/E of just 3.76X.
The neat thing is that there are still quite a few catalysts that could send the stock even higher.
Let’s take a look at two main catalysts…
The reason why BABA stock is so cheap these days is partly due to the growth in its financials. Since Alibaba’s initial public offering (IPO), both its top-line and bottom-line numbers have grown much faster than its stock price.
The company went public in September 2014. BABA stock surged to more than $115.00 per share not long after its IPO, but it has been declining for the most part since then. Its fundamentals, though, are more than solid.
In Alibaba’s first full quarter after its IPO, the company generated 26.2 billion yuan in revenue and 13.1 billion yuan in adjusted net income. One year later, Alibaba’s quarterly revenue surged 32% to 34.5 billion yuan, with adjusted net income increasing 25% to 16.4 billion yuan. (Source: “Alibaba Group Announces December Quarter 2015 Results,” Alibaba Group Holding Ltd, January 28, 2016.)
Alibaba’s business is also performing better than Wall Street’s expectations. In all four quarters of last year, the company beat analysts’ earnings-per-share (EPS) estimates every single time. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 24, 2016.)
Booming E-Commerce Business
Normally, when a company is already the behemoth in its industry, its growth might slow down a bit. However, that’s not really the case with Alibaba. As the biggest player in China’s e-commerce business, the company is still growing like a startup.
The key metric to measure the prosperity of an online retailing platform is gross merchandise volume (GMV). As the largest e-commerce platform in China, Alibaba’s GMV was already 787 billion yuan in the fourth quarter of 2014. Fast-forward one year and the company’s GMV has climbed another 23% to 964 billion yuan.
The main driver of Alibaba’s growth in e-commerce has been mobile. By the fourth quarter of 2015, the company’s mobile monthly active users (MAUs) has reached 393 million, an increase of 48% year-over-year. At the same time, mobile GMV surged an astonishing 99% to 651 billion yuan.
The shift to mobile trend works great for Alibaba. You see, user engagement is typically higher on mobile devices. The reason is simple: mobile apps are more convenient. They allow purchases on-the-go—especially impulse purchases.
And the best part is that while GMV is growing rapidly, the company also managed to improve monetization. Alibaba’s blended monetization rate of its Chinese retail marketplaces reached 2.98% in the fourth quarter of 2015, a 28-point increase from the already high 2.70% in its year-ago period.
The Bottom Line on BABA Stock
There you have it: Alibaba stock might not be that hot in the U.S. stock market, but at its current valuation, there might be a lot of growth potential that’s yet to be priced into BABA stock.