Resilience to Coronavirus Concern Is a Bullish Sign for Alibaba Stock

Shares of Chinese e-commerce and cloud juggernaut Alibaba (NYSE:BABA) have fared quite well when you consider that the coronavirus from China has brought daily life at the epicenter to a screeching halt for about a month now.

Resilience to Coronavirus Concern Is a Bullish Sign for Alibaba Stock

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Year to date, Alibaba stock is basically flat. It’s still up more than 10% over the past three months. Shares have repeatedly held the critical $200 level in 2020.

That’s pretty impressive.

Given the circumstances that Alibaba is operating against — the coronavirus outbreak, civilian distrust of the government, a slowing economy, etc. — one would reasonably expect the stock to be down big YTD, down big over the past few months and plunging below key technical levels.

But, that isn’t the case. Instead, Alibaba stock has been surprisingly resilient in the face of recent headwinds.

This resilience is a bullish sign for the stock. It means that, once current headwinds pass (and they will, soon), shares will resume their steady march higher.

Alibaba’s Resilience Makes Sense

In the big picture, recent resilience in Alibaba stock makes complete sense in the context of headwinds and tailwinds.

That is, the headwinds which are weighing on Alibaba — the coronavirus outbreak, civilian distrust and slowing Chinese economic growth — are all near term in nature. The coronavirus outbreak may be getting worse globally, but according to the World Healthy Organization, the outbreak has already peaked in China and is now de-escalating. Warmer weather in the coming months, plus a working treatment from Gilead (NYSE:GILD), will also help put the outbreak to bed soon.

Once the outbreak disappears, civilian distrust of the government will disappear. Cooped up Chinese consumers, who have been flocking to sites like Weibo (NASDAQ:WB) to voice their distrust of the government, will be so happy to get outside and lead a normal life again once the outbreak subsides, that they will stop dissenting. Instead, they will start spending, and likely in bulk, because labor conditions in China remain healthy, and 99.99% of these cooped consumers have been healthy the whole time.

This consumer spend boost once the outbreak subsides should help China’s economy re-accelerate in the second and third quarters.

Meanwhile, the tailwinds underlying Alibaba — continued urbanization of China, easing U.S.-China trade tensions and tons of fiscal stimulus from the People’s Bank of China — are enduring. Their positive impact will be felt for many months to come.

So, come summer, Alibaba’s headwinds will be gone, but its tailwinds will remain. Because of that, investors are reluctant to sell Alibaba stock today.

Alibaba Is Ready to Run Higher

All things considered, Alibaba stock looks quite attractive around $200 in early 2020.

This is a company, which, thanks to continued urbanization and digitization of China’s consumer and corporate economies, projects to grow revenues at a steady 20%-plus pace for the next several years. Margins should start to stabilize and potentially even improve with scale. So, big picture, you’re looking at 20% to 25%-plus profit growth potential over the next few years.

The stock trades at just 28-times forward earnings for that blockbuster growth. Across all growth stocks in the market today, 28-times forward earnings for 20% to 25%-plus profit growth is about as much bang for your buck as you’ll find.

At the same time, China’s economy will improve in the second and third quarters as coronavirus headwinds turn into fiscal stimulus and easing trade tension tailwinds. As goes China’s economy, so goes Alibaba’s growth profile, and the company’s growth profile will materially improve over the next few quarters.

Once near-term coronavirus fears pass, Alibaba stock looks positioned to roar higher, supported by an improving growth trajectory and an attractively discounted valuation.

The Bottom Line on Alibaba Stock

Alibaba stock is a long-term winner showing impressive resilience in the face of near-term headwinds. That tells me that once coronavirus fears pass (and they likely will within a few months), this stock is positioned to rip higher in a big way.

Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by TipRanks, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2020/02/resilience-to-coronavirus-concern-is-a-bullish-sign-for-alibaba-stock/.

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