Alibaba Stock—This Could Be The Great Turnaround Trade of 2016
Alibaba stock, or rather, Alibaba Group Holding Limited (NYSE:BABA), is representative of the initial public offering (IPO) process.
It comes to market with a lot of hype; it’s expensively priced; and basically, Wall Street has already sold it to the marketplace.
So what does the stock do? It drifts. Slowly, but surely, BABA stock has been on the decline since November of last year.
But, this doesn’t mean Alibaba isn’t a good business. Eventually, it’s likely that BABA stock will become a very good turnaround trade.
Here’s What Wall Street is Missing on Alibaba Stock
Alibaba, which is actually registered in the Cayman Islands and has some 34,000 employees, reports its next set of financials shortly. This will be the next catalyst for the position.
Naturally, a large-cap growth stock like this is not as much about the company’s actual comparable growth but the perception of it. While very much a growing enterprise, Wall Street expectations rule BABA stock’s trading action.
Reporting in Renminbi (RMB) and U.S. dollars, with a RMB6.20 to US$1.00 exchange rate in the three months ended June 30, 2105, Alibaba’s sales improved 28% last quarter to $3.27 billion.
Total sales would have improved 36% if not for a regulatory requirement to get out of the online gaming business. This kind of action is a big deal for all prospective investors in BABA stock.
Chinese commerce represents just over 80% of the company’s total business; the vast majority are retail e-commerce purchases (50% are mobile). International sales represent about nine percent of Alibaba’s total revenues.
The chart for BABA stock is featured below:
Chart courtesy of www.StockCharts.com
To offset share-based compensation dilution, the company is authorized to buy back up to $4.0 billion of its own shares over the next two years, which is significant.
Non-GAAP earnings per share, which more accurately reflects the company’s profitability last quarter, improved 21% year-over-year.
There are, of course, a lot of risks associated with investing in an e-commerce business in China, not the least of which are changes effected by government policy and regulations.
Even though Alibaba stock is currently worth close to $200 billion on the New York Stock Exchange, it is still a 100% risk-capital security. Executive decisions from the government are an unpredictable investment risk in China.
Frankly, I don’t think the Street is comfortable yet with Alibaba. Nor with the company’s ability to deliver the goods on financial growth, while providing a level of assurance regarding its country-specific investment risk.
But this is a growth story in a world where there isn’t a lot of it to go around.
Is this one of the top risk-capital turnaround trades for 2016. It’s leaning that way. I think this is a great stock to keep on your radar for its turnaround potential.
When is the Time for Alibaba Stock?
It will probably take another quarter or two for investors to get a comfortable feel for this company and its share price action.
Alibaba’s Chinese growth story isn’t going away, it’s just going to be choppy like everything in big emerging markets.