Is It Time to Buy Alibaba Stock With Both Hands?

Alibaba has strong growth, but the stock is trading like a dog

3 Pros, 3 Cons for Buying Alibaba Stock

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Alibaba (NYSE:BABA) has been a hot topic so far this year. June wasn’t that long ago, when Alibaba stock was breaking out to new all-time highs over $210. Since then though, the stock has been under constant pressure for numerous reasons.

For one, the Chinese stock market has had a terrible time. The iShares China Large Cap ETF (NYSEARCA:FXI) has fallen 17% in just three months, which is worse than its year-to-date and one-year performances, respectively. The U.S. has more staying power than many investors had previously assumed in an escalating trade war with China. As that plays out, Chinese stocks have remained under pressure.

That’s evident even when looking at U.S.-traded Chinese names. BABA stock isn’t the only one. So have Baidu (NASDAQ:BIDU), (NASDAQ:JD), Tencent (OTCMKTS:TCHEY), iQiyi (NASDAQ:IQ), Huya (NYSE:HUYA) and a host of others.

Of course, it doesn’t help that Alibaba’s founder and CEO will now step down. It wasn’t a smooth announcement either, with reports coming out late Friday night after the close saying Jack Ma will relinquish his role as CEO to pursue teaching and philanthropy opportunities. Once you’re a billionaire, you can do those sorts of things. But it still leaves Alibaba stock investors worried about the company’s future, particularly at this time.

Valuing Alibaba Stock

For all the bad that has been happening with BABA stock, there are still a lot of good things going on too. One of those things? Growth.

Analysts expect BABA to grow its revenue more than 58% this year, followed by nearly 40% growth in 2019. That’s some pretty intense growth for a $400 billion market cap company. If recent momentum continues, Alibaba could top this year’s revenue number, as last quarter, the e-commerce juggernaut churned out 68% growth, racking up $12.23 billion in sales and beating estimates by more than $400 million.

Earnings are forecast to grow just 18% this year, as Alibaba continues to invest in its high-growth future. In 2019, those expectations accelerate to 35% growth. Based on this year’s expectation for earnings of $5.68-per-share, Alibaba stock trades at a somewhat reasonable 27 times earnings.

While some investors will find that valuation too high, others recognize the value of BABA’s brand, its high-growth engine and the massive end market that Alibaba caters to in the incredibly large Chinese e-commerce market.

Admittedly, CEO Jack Ma was worth a premium, given that he took Alibaba from a site he ran in his apartment to one of the world’s largest companies. In that sense, he’s like Jeff Bezos of Amazon (NASDAQ:AMZN). Still though, the growth is there. Investors just have to find the price that they’re willing to pay for it. Where will that be?

Trading BABA Stock

chart of Alibaba stock

To help answer that question, let’s turn to the charts. The $165 to $170 area was incredibly strong support for BABA stock. That mark held up for a year, as Alibaba bounced between a fairly tight range over the past 12 months.

However, in the beginning of September, Alibaba stock broke below this key range, dropping down to about $153.

The recent bounce would have been better had Alibaba fallen into support between $145 and $150. Perhaps it still will. But down near $157 and it sure doesn’t look attractive to me. The question now revolves around support and resistance. Specifically, will prior support near $165 act as resistance and will the $145 to $150 area hold up as support?

A strong close over that $165 area could get bulls interested in the name. They should also be interested if support holds on the downside. Bears may try shorting BABA stock if resistance holds up near $165 to $170. But until we have some sort of confirmation, both bulls and bears are left with very little edge in trading Alibaba stock right now.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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