Alibaba Stock Is Already Heading Back Up

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While parts of the U.S. are at the peak of the novel coronavirus outbreak, it’s important to remember that China has successfully flattened its curve and is coming out of the crisis. And that bodes well for Alibaba (NYSE:BABA) stock.

Alibaba Stock
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Alibaba is a Chinese e-commerce company often referred to as “the Amazon (NASDAQ:AMZN) of China.” And there’s good reason for that. BABA is responsible for shipping electronics, clothes, groceries and other goods to Chinese consumers.

In addition to its e-commerce dominance, Alibaba also has a massive cloud business. And now that the Chinese economy is showing signs of life, Alibaba stock seems to be in a good position to resume its upward trend.

Alibaba Stock at a Glance

At one point, Alibaba stock was down more than 16% for the year, but a rally that began in late March has all but erased those losses.

In its most recent earnings report, BABA reported sales of $23.2 billion — growth of 38% — and reported earnings per share of $2.61. That beat expectations of $22.9 billion in revenue and EPS of $2.28 per share.

Alibaba management warned that the coronavirus pandemic would weigh on its upcoming earnings, so I’m not expecting much out of its next report due in mid-May. But there are signs that the second half of the year will be much better for BABA.

For instance, Alibaba has a majority stake in the Cainiao logistics company that has already returned to its pre-coronavirus output levels.

China also has begun raising crippling restrictions on its citizens, including in the Wuhan province where the outbreak began late last year.

KeyBanc analyst Hans Chung recently raised his price target on Alibaba stock from $248 to $255, citing a better-than-expected recovery in China’s e-commerce in March. That represents a 24% headwind for BABA stock.

Alibaba is also relatively inexpensive when compared to Amazon, with a price-earnings ratio of only 21.6, compared to AMZN’s hefty 94.2. Alibaba also beats its Chinese e-commerce competitor, JD.com (NASDAQ:JD), which has a P/E of 36.6.

The Bullish Case for Alibaba Stock

Now that China flattened the curve on its coronavirus cases and its economy is restarting, traffic to BABA’s huge e-commerce platform will also get back to normal levels.

And by normal, I mean impressive. The number of active consumers on BABA’s marketplaces topped 711 million last year, and the country’s e-commerce market is expected to be worth nearly $840 billion by 2021.

A huge part of that business will be conducted on Alibaba’s platform. Last year, BABA controlled 55% of China’s e-commerce market share.

And don’t forget – China’s brick-and-mortar companies were battered just as much by the coronavirus pandemic as stores in the U.S. are being harmed now. For weeks, China’s consumers were forced to use e-commerce for any type of shopping at all, and those forced habits may carry over now that restrictions are being lifted.

Then there’s the cloud. Much as Amazon has its dominant AWS business, Alibaba has a huge cloud platform that brought in $1.5 billion in revenue in the most recent quarter. That’s growth of 62%.

The company touted the cloud in its most recent earnings report.

We believe the migration of the core systems of Alibaba’s e-commerce businesses onto the public cloud is a major milestone that not only is generating greater operating efficiencies for Alibaba but also will encourage more customers to adopt our public cloud infrastructure.

The Bottom Line on Alibaba

Alibaba is an exceptionally strong company, is fundamentally sound, and is operating in a part of the world where the coronavirus pandemic has passed its peak. As Chinese business gets back to normal, Alibaba will be quick to return to profit levels that made it a powerhouse.

Alibaba stock ranks as a solid B across the board on my Portfolio Grader.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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