I last recommended Alibaba (NYSE:BABA) stock as a buy over two months ago on March 3. Since then, the stock has fallen only about 3%, from $210.98 to $203.68, on May 15. I expect Alibaba stock will turn around.
I am still bullish on both the company and the stock. The reason is it effectively acts as a proxy for a play on an uptick in the Chinese economic recovery.
Alibaba Is a Play on Chinese Online Spending Growth
The Financial Times recently reported that Alibaba has had a huge increase in shopping demand from all across the world. This was due to its ability to provide coronavirus-related goods such as PPE, masks, gloves, and other types of protective gear.
But the company also acts as a proxy on Chinese economic growth. As I pointed out in my last article, over two-thirds of all Chinese online shopping occurs on Alibaba’s website.
Marketwatch recently reported that Raymond James analyst Aaron Kessler said there was a 16% rise of online purchases in April. This compares with 11% in March. He said that the economy is nearing its pre-coronavirus levels on online shopping.
The analyst estimated a 16% year-over-year growth in Alibaba’s June quarter revenue. He also sees a similar 14% growth in their commissions. Kessler has a “strong buy” on Alibaba stock as a result.
One analyst on Seeking Alpha even sees Alibaba stock hitting $300 fairly soon. That represents an increase of over 47%.
Just like the Kessler, he sees a huge increase in Chinese online shopping, akin to the spike that has occurred at Amazon (NASDAQ:AMZN).
Alibaba Stock Due For a Turnaround
For example, so far Amazon stock has risen over 31% year to date. But Alibaba is only up about 0.61%.
Both companies make money from online sales. Amazon’s revenue was up 25% year-over-year to $25 billion. Alibaba does not report its March quarter revenue and earnings until May 22.
Analysts polled by Seeking Alpha expect revenue to hit $15.26 billion. This would be up 12.2% from the company’s year-ago quarterly revenue of $13.6 billion.
Amazon’s revenue was up 25% and the stock is up 31%. Alibaba’s revenue would be up about half Amazon’s amount, so the stock should go up about 15%.
What This Means for Alibaba
If that occurs, look for Alibaba to hit $242.63 per share, up 15% from $210.98 where the stock started the year. That implies a gain of 19% from today’s price.
That would imply a nice turnaround for Alibaba investors. Other online commentators have talked about the link between the two company’s prices.
It seems that Alibaba stock is likely due for a turnaround if it produces any kind of reasonable growth in revenue and earnings on May 22.
Recently Barron’s reported that Alibaba plans on increasing its investment in cloud technology over the next three years. The company said it would put $28 billion in cloud software investments to upgrade its system.
Moreover, this is the result of more online e-commerce and traffic. That bodes well for the stock over the long-term.
What to Do With Alibaba Stock Now?
Given that the company is likely to report reasonably good results on May 22, investors might consider the stock ahead of time. This is from the old phrase, “Buy on the rumor, sell the news.”
In other words, given how much Alibaba stock has lagged behind some of its online competitors and peers, I suspect there will push ahead of the results.
In either case, the company probably looks like a long-term buy given the projected growth in the Chinese online economy.