Alibaba Group Holding Ltd (BABA) Stock Looks Ready to Rebound

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Alibaba Group Holding Ltd‘s (NYSE:BABA) single-day sales record put the brakes on BABA stock’s downtrend … at least for the moment, but technical strength played its part too.

Alibaba baba stock logoBABA’s Singles’ Day — a made-up holiday held annually on Nov. 11 — delivered as expected. That has analysts feeling good about their models. As SunTrust Robinson Humphrey said in a note to clients:

“Singles’ Day has grown to account for a larger part of the quarterly GMV [gross merchandise value] every year and the trend continued this year. We estimate Singles’ Day increased to 10.3% of the December quarter GMV vs. 9.5% in 2015 and 7.3% in 2014, adding ~$3.5 billion in incremental GMV. We believe higher levels of pre-ordering and an increasingly prevalent “wait and buy” attitude from consumers contributed to the higher percentage of quarterly GMV and growth.”

The strong Singles’ Day showing combined with a couple of key technical factors buoyed BABA stock just when it looked like the recent selloff from an all-time high was starting to accelerate. Alibaba stock found support as it closed in on its 200-day moving average. It also reversed trend as if on cue when the relative strength indicator flashed “oversold.”

Alibaba Stock Is Still a Buy

BABA is counting on developing other revenue streams to drive its outsized revenue growth, including toying with the idea of serving the U.S. market. That’s probably not part of the equation any more. However, cloud, logistics and other areas remain promising and analysts are upbeat.

From Goldman Sachs:

“We continue to believe that the outlook for organic growth rates and China retail margin remains robust for BABA. (1) We foresee continued top-line growth (FY2017E-19E revenue CAGR of 28%) across key segments including ecommerce, payments, media and cloud …”

Those other growth drivers aren’t optional, either. Singles’ Day delivered a whopping $17.8 billion of gross merchandise volume in 24 hours, but this year’s growth rate was slower than last year’s. E-commerce has plenty of growth left in it, but not at the red-hot levels of the past. From SunTrust Robinson Humphrey again:

“Alibaba’s ~$18 billion of Singles’ Day GMV represents an ~32% growth in RMB terms (vs. 60% last year) and ~24% y/y GMV growth in dollar terms (given FX [currency] movements). The ~32% growth rate compares to the June quarter and Sept quarter growth rates of 24% and 23% (our estimate) respectively and supports our 22% GMV growth estimates for the Dec quarter.”

Bottom Line on BABA Stock

Alibaba stock looks like a good deal given the company’s growth prospects. Shares go for 23 times forward earnings on a long-term compound annual growth forecast of 25%. If BABA can prove that these other revenue streams are for real, we should get some multiple expansion.

Analysts at Needham are among the most bullish on the Street, calling  Alibaba stock a buy with a price target of $125. Part of the thesis is that e-commerce is hardly finished while other areas are just heating up:

“We expect BABA to report in-line revenue and EBITDA for Sep-16 quarter (F2Q17). China Commerce should continue to account for the majority of revenue and EBITDA. We expect strong GMV growth and continued take rate improvement to power China Commerce revenue growth of 42% y/y and EBITDA margin of over 60%. We believe International growth and the contribution from Digital Media and Entertainment could deliver revenue upside….We estimate continued triple-digit growth for Cloud Computing… We are raising our PT to $125.”

Between earnings and Singles’ Day, the bull case on BABA stock stands firm. If this new uptrend is sustainable, the growth prospects for Alibaba stock will put that record high back in its sights.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/11/alibaba-group-holding-ltd-baba-stock-ready-rebound/.

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