Chinese e-commerce and tech giant $Alibaba Group Holding Ltd(BABA.US)$ stock has been on a steep decline since November. After having hit a record high of $319.32 in late October 2020, the shares have taken a hit since then.
BABA stock recently saw a 52-week low of $179.67. It is currently at $195. Understandably, the market wonders whether the wild ride will end soon.
Regular readers are familiar with Alibaba’s various offerings that extend from being the largest e-commerce group in China to its high-growth cloud, digital media and entertainment businesses. Yet, so far this year, BABA shares are down 16%. By comparison, this is how several other China-based leading stocks and exchange-traded funds (ETFs) have fared:
$Baidu, Inc.(09888.HK)$— down 24% year-to-date.$Kraneshares Csi China Internet(KWEB.US)$ — down 33%.
$New Oriental Education & Technology Group(EDU.US)$ — down 88%.
$TAL Education Group(TAL.US)$ — down 91%.
Put another way, all these Chinese names are either flirting with or already are in bear market territory. So, the drop has not been limited to BABA stock. Current price levels could be tempting for bullish investors. However, I think BABA will not likely start a new uptrend any time soon.
Therefore, investors with a long-term portfolio could keep the stock on their radar and start a position around $185, or even below.
Alibaba Earnings
Founded in 1999, Alibaba reached <span>1.13 billion</span> annual active consumers as of March 31. The gross merchandise volume (GMV) in Alibaba Ecosystem was 8,119 billion RMB (or $1,239 billion) for fiscal year 2021.
In mid-May, Alibaba released financial results for <span>March quarter</span> and full fiscal year 2021. Revenue for the quarter was 187.4 billion RMB (or $28.6 billion), up 64% year-over-year. The increase was mainly driven by robust revenue growth of its China e-commerce retail business, as well as Cainiao logistics services and the cloud computing business.
Non-GAAP diluted earnings per American Depositary Share (ADS) for the quarter was 10.32 RMB (or $1.58) implying a year-over-year increase of 12%. BABA now expects to generate revenue of over 930 billion RMB in fiscal year 2022. By comparison its 2021 top line was 717.3 billion RMB (or $109.5 billion).
“We remain very excited about the growth of China’s consumption economy, which is benefiting from the acceleration of digitalization in all aspects of life and work,” CEO Daniel Zhang said. “We will continue to focus on customer experience and value creation through innovation, as we pursue our mission to make it easy to do business anywhere in the digital era.”
Alibaba will report first-quarter FY22 results in the coming days. BABA shares are currently trading at 20.33x consensus forward price-earnings (P/E) and 4.77x sales. The stock might look undervalued when compared to its U.S.-based e-commerce and cloud rivals such as $Amazon.Com Inc(AMZN.US)$ or$Alphabet Inc-CL A(GOOGL.US)$, $Alphabet Inc-CL C(GOOG.US)$. Yet, it is possibly too soon to start a new position in BABA shares.
The Bottom Line on BABA Stock
As question marks still persist, it could still be somewhat early to buy BABA stock.
However, a further decline toward the $185 level or below would improve the margin of safety. In the coming weeks, I’d expect the shares to trade in a range between $180 and $200.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
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