Like most others, Alibaba (NYSE:BABA) stock has been hammered due to the coronavirus. However, BAB stock hasn’t rebounded as aggressively as some hoped.
Shares of Alibaba stock are currently 15% off January highs. That’s still better than the overall market, with the S&P 500 down 21.5% even after its big rally on Monday April 6th.
But that performance lags direct competitors like JD.com (NASDAQ:JD), and similar comparisons like Amazon (NASDAQ:AMZN). These stocks are down just 8.3% and 8.6% from their respective 2020 highs.
One could make the argument that Alibaba should be doing even better than these stocks right now. Even though the virus outbreak has been a huge negative for the global economy, Alibaba has several catalysts working in its favor.
Valuing Alibaba Stock
We’re seeing a pretty clear coronavirus-induced trend play out: Consumers still want and need things, and are therefore seeking them out via convenient channels. In effect, the virus has forced a series of lockdowns and quarantines which is accelerating, not stymieing, secular growth trends.
I am talking about things like streaming video, telehealth platforms, social media, remote working solutions and e-commerce.
For Alibaba stock, the company is not necessarily involved in all of these themes, but it’s involved in more than one. The key driver for the company is obviously commerce. Its Tmall business is a leading e-commerce platform in China, a country that has four times the population of the U.S. and a booming middle class.
On top of that, Alibaba is leveraging its overall revenue thanks to other outlets, like digital entertainment and cloud computing. In that sense, it’s similar (although not identical) to Amazon. I am not one to fight the market, but it seems like Alibaba should be doing at least as good as its peers, if not better.
When the market turns lower, perhaps BABA will continue to underperform. But that’s all the more reason to consider a long-term position in Alibaba stock.
In its most recent earnings report from mid-February, Alibaba reported a 38% increase in revenue and a 49% increase in earnings. The company also reported a 49% increase in free cash flow. With trailing earnings of $7.50 per share, Alibaba stock trades at 26.6 times earnings.
Is that too expensive? For such impressive growth in wide-reaching secular growth themes, many will say no. In times of uncertainty, such as now, many will say yes — particularly for a foreign entity.
Let’s look at the charts.
Trading BABA Stock
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The charts are improving for BABA stock as shares push higher and attempt to reclaim the $200 zone. I personally do not think the market’s move has been all that rational. The employment numbers were bad and the jobless claims reports have been dismal as well.
The global economy slammed on the brakes and that will not result in an overnight recovery. But I am not a doom-and-gloom type of investor, and the market is a forward-looking investment vehicle.
What I mean by that is that investors will attempt to look past the next six months of bad news and poor earnings and play for the coming rebound. In other words, stocks do not bottom when the economic numbers bottom, it is before.
However, I have my reservations about the current rebound. Should it eventually wobble, those looking to buy Alibaba stock will likely get a better price. Likely something in the $175 to $185 range, which is between the 50-week and 150-week moving averages.
The latter has been strong support for the past several years and also comes into play near uptrend support (blue line). That to me would be a better buying opportunity, even though I consider Alibaba stock a leader in China and a long-term winner.
If shares continue lower through the 150-week moving average, a retest of the $170 low is possible. Below that and the 200-week moving average is possible. On a continued move higher, see if Alibaba stock can push through downtrend resistance (black line). Above puts $220-plus in play.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
