Shares of Alibaba (NYSE:BABA) have been on the mend this week, after several miserable months of trading. BABA stock is moving even higher on Thursday, after the China-based online juggernaut reported its second-quarter earnings results.
Alibaba beat on earnings and revenue expectations, growing its revenue an insane 61% year-over-year to $12.23 billion. Please find me another $450 billion company with quarterly revenue growth north of 60%. For reference, Amazon (NASDAQ:AMZN) recently reported growth of roughly 40%, which was very solid given its size too.
Alibaba Earnings
Shares of Alibaba and many other Chinese companies — like JD.com (NASDAQ:JD), Baidu (NASDAQ:BIDU), iQiyi (NASDAQ:IQ) and others — have been under pressure as trade wars between the U.S. and China have been on rough waters.
That’s interesting, given that many of these companies aren’t affected from the issue. For example, what does media streaming on iQiyi have to do with tariffs? Recent optimism over the countries’ spat has these stocks moving higher though.
The muted impact was clear from Alibaba’s update on its last three months of business. Core commerce, Alibaba’s biggest business, saw growth of 61%, in-line with its overall revenue growth profile. However, the RMB 69.2 billion in sales did come up a bit short of consensus expectations for RMB 70.2 billion.
No surprise was the strength in cloud computing. Revenue jumped 95% YoY for Alibaba, a figure that shouldn’t surprise many investors when considering the segment strength we’ve seen in names like Microsoft (NASDAQ:MSFT), Amazon and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) so far in 2018. I continue to believe there’s still a long runway of growth in regards to the cloud.
Valuing BABA Stock
Unlike shares of most big tech companies, BABA stock has spent much of 2018 trapped in a range. Some argue that the stock is overvalued, while others can’t make sense of what Alibaba actually does. Admittedly, it’s far easier for a U.S.-based investor to understand what Amazon does or what Microsoft does vs. what Alibaba does.
Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) vice chairman Charlie Munger had some thoughts on China at the company’s most recent annual meeting. He said that because most American investors do not understand the country, its culture or the sheer size of its population and have not done their research, they are missing a great investment opportunity over the long-term.
Alibaba is a great example, even as BABA stock trades at roughly 30 times this year’s earnings. Do investors realize that analysts expect sales to grow 60% this year and almost 40% next year? Or that earnings are forecast to grow more than 25% this year and accelerate to 32% growth next year in fiscal 2020?
Its ecosystem continues to grow, as more shoppers, retailers and mobile monthly active users continue to grow. It’s the largest e-commerce solutions company in one of the world’s largest e-commerce markets.
Trading BABA Stock
Raymond James analyst Aaron Kessler slapped a $280 price target on BABA stock last week. Surprisingly, MKM Partners’ Rob Sanderson did the same thing earlier this month. That’s roughly $100-per-share above current levels or more than 55% upside. But even more surprisingly, Susquehanna analysts assigned a Street-high $305 price target on BABA stock.
To get to these lofty levels though, Alibaba stock needs to get through resistance. Shares are up about 20 points from our buy recommendation down near long-term support. Now although, we’re coming into a confluence of moving averages. The 50-day, 100-day and 200-day moving averages could all act as resistance, while downtrend resistance (purple line) won’t do BABA stock any favors.
Long-term investors can make a case for staying long Alibaba stock at this point. But short-term bulls should wait for a breakout over this $185 to $188 area before deciding whether to go long.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
