After a 60% run-up over the last year, it’s easy to assume that Alibaba Group Holding Ltd (NYSE:BABA) stock is overcooked. But that assumption would ignore the performance of BABA stock’s American counterpart, Amazon.com, Inc. (NASDAQ:AMZN).
Known as the Amazon of China, Alibaba is a budding e-commerce giant in the mold of Jeff Bezos’ online behemoth.
Like AMZN, its greatest growth has come from its prominence as an online marketplace. Now that it has become more than that, sales are starting to accelerate even further.
BABA reported 59% revenue growth last quarter, well ahead of the 31% sales growth at Amazon. Although earnings growth has been up and down in Alibaba’s short history — again, much like AMZN — it is trending in the right direction, with double- or triple-digit earnings-per-share growth in three of the last four quarters. Its foray into cloud computing has played a part in BABA’s growth, with cloud sales increasing a whopping 156% in the latest quarter.
But the biggest catalyst has been its booming mobile business.
Mobile Boom Driving BABA Stock
Alibaba’s mobile business more than doubled last quarter, which is important considering 75% of its gross merchandise volume now comes from mobile retail sales. With 427 million monthly active users, the number of BABA mobile users now exceeds its PC users.
Acquisitions of video-streaming website Youku Tudou, e-commerce company Lazada Group and web browser UCWeb have all contributed to Alibaba’s burgeoning mobile presence. Those buyouts have also helped make BABA less dependent on the slowing Chinese economy, giving the company a more global footprint.
But there are two numbers that make me particularly bullish on BABA stock even after its 60%-plus, 12-month rally: $13.8 billion and 25. The former is the amount of cash Alibaba has in its coffers even after its recent spending spree — leaving room for more key acquisitions — and the latter is its forward price-to-earnings ratio, which is quite cheap for a company with sales growing this fast. By comparison, AMZN trades at 80 times forward earnings estimates.
In my mind, BABA stock is just getting started. Remember: Alibaba has only been a public company for two years, and things got off to a rocky start. A year after the company came public at $68 in September 2014, it had dipped to $59. It re-tested that bottom this past February; since then, the stock has been on a tear, and has been trading above its 50-day moving average since June.
BABA Is the Next AMZN
Fifteen years ago, AMZN was merely a place where people could go online and buy books, CDs and electronics. Then it launched its cloud-computing wing (Amazon Web Services) in 2002, and the stock took off, tripling within a year. In 2010, the company starting producing original content for online streaming; AMZN stock has risen nearly 8-fold since.
Put simply: Alibaba is where Amazon was 15 years ago, just starting to scratch the surface of its potential to become much more than a mere online marketplace. Thus, I think BABA stock is in the very early innings of a sustained, multi-decade rally. Buy it now — and thank me in 15 years.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
