For U.S. investors, a quick glance at what’s going on over at Alibaba Group Holding Ltd (NYSE:BABA) might raise some eyebrows.
A quick recap:
- The Securities and Exchange Commission has been investigating its accounting methods for some time over its logistics and transport network and “Singles Day” shopping promotion
- Incoming president Donald Trump hasn’t expressed much friendliness towards Chinese companies. As Business Insider summarized: “Much of Trump’s rhetoric during the campaign, including curbing immigration, scrapping free trade agreements and imposing tariffs on Chinese goods, would hurt tech companies.” Naturally, Asian companies are especially at risk.
- Now, to round things out, Alibaba’s Taobao has been added to a “notorious markets” blacklist by the U.S. Office of the Trade Representative—a list for sites shelling fake goods.
While the blacklist is hardly good for a U.S. expansion or for the e-commerce giant’s overall reputation, the tough reality is that accusations of counterfeit sales have been going on for some time, and have little direct effect on the success of Alibaba stock.
This formal process of adding the company to the blacklist isn’t going to do much damage, especially considering the appeal of Alibaba is selling to Chinese consumers.
If anything, the negative publicity will just strengthen the current appeal of BABA stock, which is the fact that it’s significantly undervalued. In fact, that reality is precisely why a recap of bullish calls on Alibaba stock would end up being significantly longer than the aforementioned red flags. My assessment falls in line with that analysis.
Besides, every company faces regulatory and watchdog obstacles, among others. BABA stock is no exception.
BABA Stock by the Numbers
Currently, Alibaba stock is trading at just over $87. Last fall, Citi handed BABA stock a price target of $133 — significant upside — while Goldman stock also upped its price target to a sweet $130. More recently, Barron’s also pointed out that Alibaba is expected to ramp up its spending on content this coming year, and because it “enjoys a competitive advantage from its sprawling social media user base and online gaming roots, [Alibaba] offers a cheaper way to play the growth of the Internet in China.”
Along the same lines, Alibaba — much like Amazon — is also making a push into the cloud. That should pay dividends down the line.
In 2016 (so far), BABA stock gained around 8%, which is just about in line with the S&P 500. But it was outperforming earlier in the year, as seen by the fact that shares have lost around 17% in the last three months or so.
But while earnings and revenue are expected to drop this year, next year they’re supposed to recover by 20% and 30% respectively.
Add it up and I too believe Alibaba stock is a great undervalued tech pick, especially given the negative press. Investors will get reminded of BABA’s potential when it reports strong growth in 2017, and shares of the stock will catch up accordingly.
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.