BABA Stock: Why Alibaba Group Holding Ltd has Enormous Upside Potential

BABA StockAlibaba Group Holding Ltd (NYSE:BABA) stock was the unloved child in the Internet boom last year. However, fundamentals for the Chinese e-commerce giant haven’t slipped a bit. In fact, they have only gotten better. I wouldn’t be surprised if Alibaba stock takes a huge surge in the next few months.

Tremendous Growth Despite Its Size

Oftentimes, when you become the reigning champ in your industry, you might not be able to grow like a startup anymore.

Alibaba is certainly a behemoth. I mean, the company has a near 80% market share in China’s e-commerce business. (Source: “How Alibaba is Working Towards Establishing Itself in the U.S.?Forbes, February 25, 2016.)

What makes Alibaba special is that despite its size, it is still growing rapidly.

In the most recent quarter, Alibaba increased its revenue by 32% year-over-year to $5.33 billion. Gross merchandise volume (GMV) surged 23% year-over-year. The number of annual active buyers on Alibaba’s e-commerce platform has now surpassed 400 million. (Source: “Alibaba Group Announces December Quarter 2015 Results,” Alibaba Group Holding Ltd, January 28, 2016.)

If you wonder whether the company can monetize on the growing merchandize volume, there is good news. Last quarter, Alibaba’s monetization rate (the commission charged to sellers on each transaction) increased to 2.98%, a big improvement from the 2.70% in the year-ago period.

Global Expansion

For now, the bread and butter of Alibaba’s business remains in China, but the company might have some serious plans about global expansion.

Last month, Alibaba disclosed a 5.6% stake in group buying site Groupon Inc (NASDAQ:GRPN). Moreover, it has built up stakes in online retailer Jet.com and transportation network company Lyft Inc. (Source: “Groupon Soars Again, This Time After Alibaba’s 5.6% Stake,” Bloomberg, February 16, 2016.)

The reason behind Alibaba’s move is simple—to learn more about the consumer market in the U.S. According to Alibaba, buying a stake in Groupon is to “share ideas between U.S. and China markets.”

Alibaba already has a platform for global online shoppers—AliExpress. However, it’s yet to take main stage. In many places around the world, e-commerce is still dominated by Amazon.com, Inc. (NASDAQ:AMZN). So it might not be a bad idea to learn from local companies.

The Bottom Line on BABA Stock

Despite its solid performance and huge potential, Alibaba stock hasn’t really been a favorite among investors. In the past 12 months, the stock has tumbled nearly 17%.

Today, BABA stock commands a price-to-earnings (P/E) multiple of around 17, a very low number compared to Amazon’s P/E ratio of more than 460. Sure, Alibaba might not be as great as its international counterpart, but at today’s valuations, BABA stock could have serious upside potential.