Alibaba Stock: Breakout on Chart Signals Bigger Moves

Alibaba Stock
Credit: iStock.com/vivalapenler

Alibaba Signals Big Moves on the Horizon

In a massive move, Alibaba Group Holding Ltd (NYSE: BABA) stock surged above $200.00 last Friday and, in the process, the company’s market cap surpassed $500.0 billion for the first time, something that I have long believed would happen.

For many of you who have been following my coverage of BABA stock since it was trading at the $80.00 level, the major run-up isn’t that much of a surprise, given that the relative valuation of Alibaba was long underestimated by “Mr. Market.”

On a relative price performance basis, Alibaba stock has been slightly underperforming Amazon.com, Inc. (NASDAQ: AMZN) in January, gaining 18%, versus 19% for Amazon. But, on a one-year comparison, BABA stock is blowing away Amazon, with an impressive 97% advance, compared to 66% for Amazon.

baba stock chart

Chart courtesy of StockCharts.com

The break at $192.00 and $200.00 for BABA stock is purely psychological and could drive more momentum buying into the stock.

Investors will be closely monitoring Alibaba’s fiscal third quarter this Thursday. There are whispers that the numbers could be massive.

Consider the $25.0 billion of sales on Singles’ Day in November 2017 that will be listed in the quarter.

But, while a big beat would be great for Alibaba, what I want to see is the company’s growth in its high-potential cloud business. Alibaba’s cloud business is only in its infancy, but it is rapidly gaining, albeit its gains are nowhere close to those of the “Amazon Web Services” (AWS) cloud business.

Marriage of BABA Stock and Kroger Could Be a Game Changer

What you cannot underestimate is the ability of Alibaba CEO Jack Ma to continue to refine the company’s online retail business—not only on its home turf, but also in the United States and Europe. These moves would be game changers for Alibaba, but it won’t be easy.

In an intriguing development, Alibaba is currently in discussions with troubled grocer Kroger Co (NYSE: KR), which was hit hard by Amazon’s acquisition of Whole Foods Market, Inc. (NASDAQ: WFM).

While the details of the talks are unknown, I wouldn’t be surprised to see Kroger looking for a partner like Alibaba in the battle against Whole Foods and Amazon.

The fact is, Alibaba already owns physical grocery stores in China and has experience in the segment, so I could see a venture with Kroger.

Kroger would align with a big innovative player in the online retail segment while Alibaba would somehow get a major foothold in the lucrative U.S. market—something that Alibaba has been talking about.

The marriage could see Alibaba set up Kroger outlets as a distribution channel for those buying goods on the Alibaba Web site, a concept that Amazon is doing with Whole Foods.

Analyst Take:

Alibaba appears to have some momentum that could see its stock price reach higher, especially if the company’s third-quarter results blow away estimates.