Jack Ma phasing out of the Alibaba (NYSE:BABA) lineup wasn’t a shocking revelation that took Wall Street by surprise. The initial announcement certainly made headlines last year, causing some concern about what it might mean for the future of Alibaba stock.
But largely, investors have embraced the fact that Ma would slowly exit the company he started twenty years ago, growing it from a tiny unknown entity to a global powerhouse worth more than $450 billion.
Last week Ma stepped down from the executive chairman role. The move was announced roughly a year ago, so investors have had time to grow acclimated with it. In short, BABA stock is not a sell simply because Ma is stepping down.
While we would love to have him along for the ride as executive chairman, he is stepping aside with the company in good hands. Let’s see what else Alibaba Group has going for it.
Alibaba’s Business Is Strong
Alibaba didn’t just build an e-commerce platform benefiting from a rise in online sales. Granted, it does have a very strong online presence, but it’s more than that. E-commerce is a secular trend as more retail sales continue to shift online. The fact that the Chinese middle class continues to boom is a huge tailwind for a company like Alibaba.
As this shift continues, Alibaba benefits, as does its Taobao unit (an online shopping platform). All one needs to see is Alibaba’s Singles Day sales total to know of its dominance. It registered sales of more $30.8 billion in last November’s event, crushing the previous year’s record of $25.3 billion. Where do you think Amazon (NASDAQ:AMZN) got the idea for Prime Day?
Then there’s Ant Financial, which has become China’s largest fintech platform, that was started five years ago next month. Alibaba’s Ant Financial has an estimated value of $150 billion.
Finally, Alibaba’s cloud business is now 10 years old, but the company is still very optimistic on its future. The unit is its fastest-growing revenue segment and second-largest revenue source at the moment. This should come as little surprise, given the emphasis mega-cap tech stocks have put on the cloud here in the U.S.
BABA Stock Growth
Here’s the thing with Alibaba stock: BABA stock has been weighed down thanks to the recent trade war developments. This has kept a lid on the stock, allowing the valuation to fall while the company continues to rack up growth.
Estimates call for 32% revenue growth to $72.2 billion this year and another 29% growth next year to $93 billion. It won’t be long before Alibaba stock is churning out $100+ billion in annual sales.
On the earnings front, analysts expect 23.3% growth this year to $6.88 per share. Next year, estimates call for an acceleration to 26% earnings growth, to $8.67 per share.
Currently Alibaba stock trades at just under 26 times this year’s earnings. Some may scoff and say that’s too much. But compared to its U.S. counterparts, it looks cheap.
BABA stock valuation is about in-line with with Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT). However, it has roughly double the expected earnings growth this year and next year, nearly double the expected revenue growth of GOOGL and nearly triple the forecasted revenue growth of MSFT.
Against Amazon, Alibaba stock is much cheaper, yet has better growth as well. Take that for what it’s worth.
Trading Alibaba Stock
Click to EnlargeFinally, the charts are setting up favorably for Alibaba stock.
After hitting a low of $151.85 in early August, shares have been chugging higher since. A series of higher lows has led to an uptrend support mark (blue line), while BABA has pushed through all of its major moving averages.
Now bumping up against $180 resistance, Alibaba stock has a very clear ascending triangle setup. That is, when rising support continues to push a stock price into a static level of resistance.
Traders will be looking for a breakout over $180 and a possible run to $190+ should the breakout stick. If support fails, I want to see support between $168 and $171 hold strong. That’s where BABA stock will find its 50-day and 200-day moving averages, as well as the 38.2% retracement.
Remember, while the setup looks promising, Alibaba stock is extra susceptible to a trade-related headline dealing a hearty blow to the charts.