It’s been a bumpy year for Chinese e-commerce firm Alibaba (NYSE:BABA), as investors dipped in and out of BABA stock on worries about trade tensions between the U.S. and China. However, Alibaba stock is looking more and more attractive as the company works to execute on its growth strategy. BABA stock looks especially appetizing for long-term investors.
A month ago, when BABA stock was trading below $170 per share, I pointed out that Alibaba Group was trading at a significant discount. At $163 per share today, you still have a chance to jump on the Alibaba stock train before it leaves the station completely.
According to the Wall Street Journal, there are 52 analysts covering Alibaba Group and not a single one has given BABA less than a “hold” rating. What’s more, 87% of those analysts recommend buying Alibaba stock, and the average price target for BABA stock is $219.50—more than 30% higher than the price of Alibaba stock today.
I’ve never been one to take analysts’ word as gospel, but that kind of overwhelming optimism should at the very least put BABA stock on your radar.
Alibaba Group Is Poised to Grow
A big part of the reason there’s so much enthusiasm surrounding Alibaba stock is the fact that the firm is executing on some of the key pillars of its overall growth strategy. One of my biggest concerns about BABA stock over the past few years was the firm’s international reach. At the time, Alibaba was plastered all over the headlines and being called the Amazon (NASDAQ:AMZN) of China. But I questioned the company’s ability to follow in Amazon’s footsteps by growing outside its home country.
Fast forward to today, and we can see that BABA is taking the steps necessary to do exactly that. Alibaba’s marketplace has been open to U.S. buyers for some time, but the firm is finally opening the door for U.S. sellers to unload their products on its site as well. As it stands, nearly a third of Alibaba’s buyers come from the U.S. while 95% of sellers are based in China, but that could change as Alibaba rolls out business memberships that will allow small and medium-sized U.S. merchants to sell on the Chinese marketplace.
For me, this is the first real shot across the bow that Alibaba has taken at Amazon. In the B2C space, Amazon is a top dog in the U.S., allowing sellers to take advantage of Amazon’s warehouses and logistics networks. While BABA isn’t going quite that far, the firm is giving American vendors the opportunity to easily reach international markets .
Cloud Bets
BABA is also delivering when it comes to cloud computing, as the firm is already the number one Chinese provider of cloud computing. Right now, cloud computing makes up less than 10% of BABA’s overall revenue. As a result, the focus has remained on the e-commerce side of Alibaba’s business. However, revenue from BABA’s cloud segment has been growing exponentially, and as China’s tech sector catches up with America’s, that figure is likely to become a much more important component of BABA’s overall revenue.
BABA Chairman Jack Ma has been working to build out BABA’s cloud offerings, and a recent partnership with Salesforce.com (NYSE:CRM) is evidence of his grand plans for Alibaba’s cloud business. The data management software that CRM provides will enhance BABA’s cloud offerings and offer Chinese firms a more comprehensive customer management tool with which to grow their businesses.
The Bottom Line on Alibaba Stock
Aside from those two major steps forward in Alibaba’s overall strategic plan, there’s a lot to like about BABA stock. The company is likely to benefit from a recovery of the Chinese market, and the firm’s massive collection of customer data will undoubtedly prove very valuable as more merchants join the platform. If you view Alibaba Group as “the Amazon of China,” then you can see BABA’s potential growth avenues by simply looking at the sectors Amazon has entered in the U.S.: groceries, pharmacy, logistics; the list is exhaustive.
Trade war or not, Alibaba Group looks poised for major growth over the next six months as the firm continues to expand its reach into the US. At $163 per share, Alibaba stock looks like a bargain that’s hard to pass up.
As of this writing, Laura Hoy was long AMZN and BABA.
