Why Alibaba Deserves a Much Higher Valuation
For those who follow the hedge fund industry, you know that Ray Dalio, the founder of hedge fund Bridgewater Associates, LP, is a generational investor.
So, when Bridgewater purchased 84,629 shares of Alibaba Group Holding Ltd (NYSE:BABA) in 2018, you know that it was a bullish sign for BABA stock, despite the position representing a tiny portion of the fund.
Nevertheless, it was a start that could signal larger purchases of Alibaba stock in the future.
Now, as many of you know, I didn’t need Dalio’s move to support my bullish thesis on Alibaba. I have been bullish on BABA stock from its early days and I never wavered, even amid the trade war with China.
Alibaba is half of the size of Amazon.com, Inc. (NASDAQ:AMZN), but still has a whopping market cap of $463.0 billion, which makes the company the fifth- or sixth-largest in the world.
While Alibaba is a mega-sized company, my view is that it has much more room to grow and we may only be in the early innings.
On the chart, Alibaba stock is hovering around $177.00, with a pathway to retesting resistance around $188.00 to $190.00.
Chart courtesy of StockCharts.com
Year-to-date, BABA stock is outperforming the Nasdaq.
The high point for this stock was $211.70 in June 2018. I fully expect Alibaba stock to eventually take out this high mark; it’s a question of when, not if.
This Is Why BABA Stock Can Produce Another Double
The catalyst for Alibaba Group Holding Ltd is the company’s innovation and desire to always look at ways to strengthen the company.
Co-founder Jack Ma is no longer actively running the day-to-day operations, but the company appears to be in good hands.
In an intriguing move, perhaps driven in part by the U.S.-China trade war, Alibaba is planning a secondary listing on the Hang Seng Index in Hong Kong. That strategy will reduce some of the listing risk for the company in the U.S. in case the trade conflict worsens.
Alibaba also just announced it will allow smaller U.S. companies to list on its site and sell to retail and commercial buyers in China. The move is aimed at the small- to mid-sized American companies that had been restricted from selling to China. Previously, these companies were only allowed to buy from China.
If successful, the strategy would open up the massive Chinese market to U.S. companies—something that could disrupt the competitive landscape in China. Even President Donald Trump has to like this action by Alibaba.
And in the computer hardware space, something Alibaba has been working on, the company just developed its first processing chip for artificial intelligence applications, “Xuantie 910.” While there are still questions regarding the chip and its capabilities, the development represents a milestone for Alibaba.
I’m pretty sure we will be sitting here a decade from now and Alibaba stock will be worth twice as much as it is now.
The company has been generating massive revenue growth and free cash flow, and it looks like this will continue. The stars are aligning for Alibaba Group Holding Ltd, so you might want to keep an eye out.