Alibaba Group Holding Ltd (BABA) Stock Is Trump-Proof

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The election of Donald Trump has certainly not been kind to the shares of Alibaba Group Holding Ltd (NYSE:BABA). His campaign rhetoric regarding China was mostly negative and after he won on Nov. 8, BABA stock has lost more than 8%.

Alibaba Group Holding Ltd (BABA) Stock Is Trump-Proof

Source: Photo by via Alibaba

But not all of Alibaba stock’s problems are sourced in Mr. Trump’s rhetoric. Before the election, there was selling in BABA stock.

Investors were worried that the growth in the Chinese economy as well as the Securities and Exchange Commission’s investigation of the company’s accounting. There has also been uneasiness about the competitive environment, such as with operators like JD.Com Inc(ADR)(NASDAQ:JD).

Despite all this, the fact remains that the Trump factor is still extremely important, but that does not necessarily mean investors should avoid Alibaba stock.

The Truth Behind BABA Stock

Even if Trump does get much more aggressive on trade policy, BABA stock should still benefit greatly from its massive footprint in China.

Just consider some of the following:

  • The population of China is 1.4 billion. Of this, about 109 million are part of the middle class and this group is expected to increase by a whopping 830 million by 2030, according to iResearch Report.
  • The total retail e-commerce transaction volume was $609 billion in 2015 and it is forecasted to hit $1.46 billion by 2020. That’s a compound annual growth rate of 19.2%.
  • The brick-and-mortar retail market in China is highly fragmented, which means that e-commerce should remain an attractive alternative for consumers.

As for Alibaba, it has gotten an out-sized share of the opportunity. In the latest quarter, revenues spiked by 55% to $5.1 billion and earnings came to 79 cents per share of BABA stock. One of the key drivers, of course, was mobile. There are about 450 million mobile monthly active users.

But e-commerce isn’t the only thing that’s important to Alibaba stock’s future. BABA has also invested in other large growth opportunities in China, such as cloud computing, mobile payments and even entertainment. For example, the company has recently signed a deal with Steven Spielberg’s Amblin Partners. On top of that, Alibaba already hosts about 35% of China’s websites. For the most part, the company is replicating the Amazon.com, Inc. (NASDAQ:AMZN) model.

Something else: About 90% of revenues for BABA come from Chinese consumers. In other words, if there is a Trump-inspired trade war, then the impact may be diluted. Regardless, how realistic is it that there will even be a trade war?

Trump’s nominees to top positions in the administration are mostly wealthy — and have been big beneficiaries of globalism.

These include billionaire Wilbur Ross (for Commerce Secretary), who has made his fortune by restructuring old-line industries like steel and coal; Steven Mnuchin (for Treasury Secretary), who is a former Goldman Sachs banker and hedge fund manager; and billionaire Todd Ricketts (for the deputy position at the Commerce Department), who is the son of the founder of TD Ameritrade Holding Corp. (NASDAQ:AMTD). Furthermore, Trump is no stranger to globalism, as his own businesses have outsourced manufacturing outside the U.S.

Bottom Line on Alibaba Stock

The fact is that the world economy is highly interconnected. What’s more, China is the U.S.’ largest trading partner. So taking a radical approach to trade could prove disruptive and perhaps result in economic decline — and wrenching volatility in the markets. Is this something millionaires and billionaires like Ross, Mnuchin, Ricketts and Trump really want? It doesn’t seem too likely, actually.

Given all this, Alibaba stock may ultimately be in a pretty good spot. The company is likely to remain a major beneficiary of the growth in China and the threats to global trade do seem overblown. Plus, the valuation on BABA stock is fairly reasonable, with the forward price-to-earnings ratio at 23X.

This is actually at a discount to the forecasted long-term growth rate of 25% or so.

Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own tax preparation firm. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/alibaba-group-holding-ltd-baba-stock-trump-proof/.

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