Alibaba (NYSE:BABA) has found some mojo over the past several trading sessions. Shares have jumped 11% over the past three days, as investors are gobbling up Alibaba stock ahead of earnings.
The company is scheduled to report its quarterly results on May 22 before the market open. Will Alibaba beat expectations?
There’s no way to know for sure — obviously — but investors seem to have gotten a dose of confidence lately. Let’s look at three reasons why Alibaba stock should remain in favor for investors.
Charts Are Strong
You don’t have to be a diehard technical analyst to acknowledge that Alibaba has some good-looking charts.
Shares have held the 200-day moving average as support this month. With its latest surge, Alibaba stock has reclaimed its 20-day and 50-day moving averages and has now broken out over downtrend resistance (blue line).
Now, the stock is running into last month’s high. We’ll see if it can gain momentum over this level ahead of earnings or if it begins to pull back. Above it and a push up toward the 78.6% retracement and the $220 level is in play. On a dip, I’d love to see support come into play on the backside of prior downtrend resistance and the 20-day moving average.
In any regard though, the technicals here are solid.
Alibaba Stock Has Good Businesses
If we’re learning anything from the market’s action over the past two months, it’s that investors are flowing into what’s working. And what’s working is tech and growth. Companies in the cloud, software, streaming, data centers and e-commerce are doing well.
For Alibaba, the company has exposure to many of these groups. Obviously e-commerce drives a bulk of its revenue, but the company has been diversifying its line-up too. For example, it also benefits from streaming content and cloud computing.
If we’ve seen anything, it’s that large-cap tech stocks are doing fine in this environment. That includes Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Microsoft (NASDAQ:MSFT), among others. With continued momentum on a strong earnings report, Alibaba will soon find its name on that list as well.
Don’t forget about financial services, either. Investors have all seen how well PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) are doing. But remember, Alibaba holds a 33% stake in Ant Financial, the world’s largest FinTech player.
Look for these businesses to continue driving solid growth for Alibaba stock.
Growth Is Strong
Speaking of that growth, let’s look at some of the numbers.
Analysts are pricing in a slowdown, but it’s not significant. They expect earnings of 87 cents per share this quarter, down from $1.37 per share 90 days ago. However, the full-year is much more resilient. Current estimates of $7.11 per share are down just 5 cents from $7.16 per share three months ago.
If it comes to fruition, that will be up more than 27% from 2019’s figure. Further, consensus expectations call for 30% revenue growth this year and next year. There are not many mega-cap companies that can post back-to-back years of 30% revenue growth. That’s particularly true in the current environment.
In a regular environment, one could argue that 30 times earnings is a reasonable valuation for Alibaba’s growth. However, at a time where growth is quite scarce and many companies would love flat year-over-year growth, the companies with strong growth are worth a premium, in my view.
Alibaba stock fits the bill here. I have made this case countless times over the past month, and it’s a view that the market clearly agrees with. While estimating how a company will do in 2020 — let alone 2021 — seems nearly impossible due to the novel coronavirus, we’ve seen from Alibaba’s peers that the growth is there.
With fewer stocks fighting for growth-investors’ dollars, valuations could certainly be on the rise. That’s one of many reasons why I like Alibaba stock.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.