Alibaba Group Holding Ltd (NYSE:BABA) stock is currently sitting at its highest level since early 2015. Last month, it posted its best two-day run since debuting on Wall Street in September of 2014.
Alibaba, the Chinese search giant, was a highly anticipated IPO and actually ended up being the largest in Wall Street history. But while BABA stock climbed in late 2014, the year that followed saw nothing but losses.
This year, Alibaba stock appears to be back on track. Most recently, strong earnings and an analyst upgrade have given BABA even more momentum and helped bring its year-to-date gains to an impressive 28%.
Critics are saying the recent run has been overdone and fueled in part by shorts covering their positions, but I believe Alibaba stock has more upside ahead.
The Bull Case for BABA Stock
Last year’s rockiness came in part as a result of the aggressive pricing and big-time anticipation of the company’s IPO. But the overall bull case for Alibaba stock, which was a big bet on the Chinese middle class, remains as attractive ever.
Despite some question marks around Chinese growth, Alibaba itself continues to grow with no problem.
This was evident in the most recent quarter, when Alibaba posted 59% revenue growth, including 49% revenue growth for its China retail marketplaces. As noted in the release, that represented the highest growth rates achieved since the company’s IPO. Those are anything but small numbers and, at this stage in the game, that’s no small feat.
Alibaba’s growth is especially appealing considering we’re in an environment of tepid growth right now. Overall, earnings declined in the S&P 500 during the second quarter. Not only did Alibaba post growth (33%) and blow away Wall Street’s consensus on the bottom line (52 cents vs. 38 cents), but it did so via organic sales expansions.
Many are saying Alibaba’s valuation is too frothy after this run but, again, I disagree. While it has naturally expanded some as shares climb higher, it’s backing it up with the growth rates mentioned earlier. Stocks across the board are frothy right now, too, with the average price-to-earnings ratio of the S&P 500 sitting at 17 … and that’s the price for a blended earnings decline!
Once again, with the growth Alibaba has shown us, these new level seem justified.
Aaron Kessler of Raymond James (who has been a BABA stock bull since he initiated coverage) seems to agree. Last month, he upgraded BABA to a “strong buy,” raising his price target to $124 from $95. BABA stock has indeed been climbing higher since his call, yet there is still 20% upside to be had before his target is reached.
I think it’s a great time to ride Alibaba stock’s momentum and capture some of that remaining upside. I love the footprint of BABA stock, its overall value proposition and the resilience it has shown since going public.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
