In the last month since the coronavirus from China emerged, China-based stocks have not faced that much selling pressure. Alibaba (NYSE:BABA) stock is holding up well. Investors are speculating that the lockdown in several of the country’s biggest cities will lead to a surge in online sales.
As a leading e-commerce firm, Alibaba stock should reward investors over the long haul. This bullish view comes despite the company outlining the impact of the coronavirus outbreak during its earnings call.
Alibaba reported revenue growing an impressive 38% year-over-year. Its cloud unit saw 62% year-over-year growth. And in the consumer space, the company had 824 million mobile monthly active users and 711 million annual active customers.
Generating $11.2 billion in non-GAAP free cash flow will justify the current level of the Alibaba stock price. Besides, China’s hard-hit Hubei province is reporting lower daily infection counts. The control of its spread suggests that the country may cautiously re-start operations.
As China returns to its daily activity, Alibaba is in a good position to capture more market share. People will avoid public places and areas where there are crowds. This may give Alibaba’s retail revenue a strong lift.
Conversely, if people stay at home, Alibaba’s digital media and entertainment unit, which generated $1.1 billion in revenue, may grow at a faster pace. It grew 14% year-over-year in the last quarter.
Risks and Opportunities
Alibaba’s management described the novel coronavirus as a “black swan” event. CEO Daniel Zhang said that “The outbreak is having [a] significant impact on China’s economy and may potentially affect the global economy. It will present near-term challenges to the development of Alibaba’s business across the board, but at the same time, we will see opportunities created by the forces of change.”
The market seems to agree with the sustained, strong prospects that will prevent Alibaba stock from falling much.
Furthermore, Alibaba is giving back to the community to help regions hurt by the coronavirus. It is leveraging its efficient commerce system and is delivering supplies in areas that need them most. For example, it shipped 40 million units of medical supplies to Wuhan and other affected cities.
Together with Ant Financial, Alibaba reduced business operation costs to help small and medium businesses. Overall, it has 20 major initiatives and programs with the financial services firm to help its customers and partners.
Valuation on Alibaba Stock
Alibaba has a fair value of $295.29, according to Stock Rover. Conversely, do-it-yourself investors may reasonably forecast revenue growth slowing to the low single digits a decade from now. In that scenario, Alibaba stock has a fair value of $240.
Alibaba stock’s value is average, on a price-earnings and price-sales measure. But the company’s strong growth prospects continue to impress investors. This is a quality company with a strong net and gross margin.
For now, chances appear low that Alibaba stock will fall. At current levels, the stock is a reasonable buy for the investor with a long-term time horizon.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns. As of this writing, Chris did not hold a position in any of the aforementioned securities.
