Alibaba Group Holding Ltd: More Upside for BABA Stock?

Alibaba Group Holding LtdHuge Potential for BABA Stock

Alibaba Group Holding Ltd (NYSE:BABA) stock debuted nearly two years ago as the largest technology initial public offering (IPO) in history after raising a whopping $25.0 billion. Alibaba stock sold for $68.00 a share and surged 34% at the time.

In November last year, BABA stock traded as high as $119.00 per share, up 75% from its IPO price. However, the stock suffered a beating due to the challenges confronting the company including allegations that it is tolerating the sales of counterfeit products on its web sites, such as Taobao, and the slowing Chinese economy.

Over the past 52 weeks, Alibaba stock traded as low as $57.20 per share but managed to recover. It is now trading at around $83.33 per share, higher than is IPO price. BABA remains a must-own stock and several analysts feel now is the time to buy shares before the company performs a rapid turnaround.

Here are the following reasons why Alibaba stock is still a great investment…


Alibaba Is a Profitable Company

The Chinese e-commerce giant demonstrated its ability to grow and make profits amid challenges. Alibaba reported a 39% increase in revenue to more than ¥100 billion in the first quarter of 2016 from ¥20.02 billion in the same period in 2012. The company’s net income also increased from ¥4.22 billion to ¥71.46 billion in the same period, based on data from Morningstar.

Its gross merchandise volume (GMV) transacted in retail marketplaces in China during the first quarter was ¥742 billion, up 24% from the same period in the year-ago quarter. Its mobile GMV was ¥541 billion, an increase of 78%.

Alibaba is the largest online and mobile e-commerce company in terms of GMV. Analysts at Jefferies believe BABA stock is an attractive investment because it is cheap and it has huge growth potential. Analysts estimated that the company would achieve a compound annual growth rate (CAGR) of 24% until 2018. Jefferies analysts believe that BABA stock could reach $101.00 per share.

Alibaba Is Investing in Potential Growth Drivers

It is important to note that Alibaba is expanding and diversifying its business continuously. In other words, the Chinese e-commerce giant is investing in potential growth drivers for the future.

Alibaba CEO Daniel Zhang said the company’s long-term strategic priorities include globalization, rural expansion, building a world-class cloud-computing business, and creating a comprehensive media and entertainment platform.

This year alone, the Chinese e-commerce giant invested $4.5 billion in Didi Chuxing, the leading ride-sharing company in China; ¥3.68 billion in UCAR, a chauffeured car service provider in China; $1.0 billion in Lazada Group, a privately-owned Singaporean e-commerce company; and $793.5 million in Magic Leap, a proprietary wearable technology company. (Source: “List of Alibaba Investments,” Crunch Base, August 2, 2016.)

It was recently reported that Alibaba offered to acquire Allegro, one of the biggest Web auction companies in Eastern Europe, with 22,000 active online shops.

China’s Economy Is Stabilizing

A recent report from the International Monetary Fund (IMF) showed that China’s near-term economic outlook is improving due to the government’s policy support. The Chinese government reduced the benchmark lending rate five times last year and its fiscal policy became expansionary in the second half of the year.

Last month, Chinese stocks recorded the biggest monthly gain, which provides additional proof that the country’s economy is stabilizing. The positive economic trend could help Alibaba continue to grow rapidly and increase its profits over the next quarters.

Alibaba Is Committed to Fighting Counterfeit Goods

Alibaba is also addressing its problem on counterfeit goods. Its founder and executive chairman, Jack Ma, stated that his company is “100% committed to leading the fight against counterfeiting, online and offline.” He emphasized zero tolerance for those selling fake goods and ripping off other people’s intellectual property. (Source: “Counterfeit Goods Have No Place on Alibaba,” The Wall Street Journal, June 22, 2016.)

The Chinese e-commerce giant believes that it can solve the problem by using big data to determine the manufacturers of counterfeit goods. Additionally, Alibaba said it would reimburse customers who purchased fake goods on its web sites and would ban those selling counterfeit products on its platforms.

These actions show Alibaba’s commitment to fighting the sale of counterfeit products and could help the company boost its integrity, keep its customers, and attract more consumers to its e-commerce web sites.