When I look at Alibaba (NYSE:BABA) stock, the biggest thing that pops out to me is its massive potential.
Alibaba is the closest thing you’ll find to Amazon (NASDAQ:AMZN) in China. It has a dominant e-commerce business. It has a cloud business that’s growing quickly.
And it has an enviable position for continued growth in China and southeast Asia.
Then add in the fact that BABA stock is massively undervalued these days. The stock had a bad 2021, and is down 54% over the last 12 months. Alibaba traded at more than $300 a share in October 2021, but these days you can pick up BABA stock for about $120 per share.
A Year to Forget
If you’re sitting in Alibaba’s C-suite, you want to forget all about what happened in 2021. Alibaba was riding high. It’s founder, Jack Ma, was also in charge of Ant Group, which is one of the world’s biggest fintech companies.
Ant Group was preparing for an IPO and with Alibaba’s investment, profits in Ant would give more fuel to Alibaba’s engine. But Beijing’s Chinese communist government had other ideas.
Ostensibly wanting to rein in Ma and his massively popular public profile, government regulators cancelled Ant’s $34 billion IPO. Then it ordered that Ant form a separate financial holding company so it would have to follow the same capital requirements as major banks.
Finally, Beijing told Ant it had reduce the size of its money market fund, and break its “information monopoly” on its huge trove of detailed customer data.
For its part, Alibaba got hit with a $2.8 billion antitrust fine. It also had take a 38% loss in selling its minority stake in Mango Excellent Media, a unit of state-run Hunan TV.
BABA Stock at a Glance
Honestly, I’m mildly surprised that BABA lost only 50% over the last 12 months considering everything it’s gone through. But there’s also plenty to appreciate with Alibaba stock.
Alibaba hasn’t announced a date for its fiscal third-quarter earnings. But considering it reported Q2 earnings in mid-November, the latest BABA report could come out any day.
In the second quarter, the company posted revenue of 200.69 billion yuan ($31.4 billion). While that missed analysts’ lower expectations of 204.93 billion yuan, it also was a 29% increase from a year ago.
Earnings per share were 11.20 yuan, which also missed expectations of 12.36 yuan. That was a drop of 38% from a year ago.
The company also cut its full-year guidance. It had previously projected income of 930 billion yuan, or 29.5% growth. But its new projection was for growth of 20% to 23% from the previous year.
Analyst Expectations
Tell me if you see a pattern here:
- Mizuho analyst James Lee cut his price target on BABA stock from $215 to $180, but maintained his “buy” rating. He says the quarter will be a challenging one, but company will turn things around in 2022.
- Trust analyst Youssef Squali dropped his company’s price target for Alibaba from $200 to $180, but maintained his “buy” rating. He doesn’t expect BABA to reach consensus revenue targets this quarter. But he says he’s impressed by the company’s “massive opportunity” in southeast Asia and China.
- Stifel analyst Scott Devitt cut his company’s price target for BABA from $170 to $150, but maintained his “buy” rating. He believes Alibaba’s fiscal Q3 revenue growth will be 12.1%, instead of the 15.5% he previously predicted.
That’s pretty clear. Analysts are widely expecting BABA stock to disappoint when it reports its earnings this month. But the long-term prognosis for Alibaba is strong. Each analyst recommends taking a position now at these reduced prices.
The Bottom Line
I’ve never made it a secret that I like BABA stock. I’ve always thought it was a better long-term e-commerce play than AMZN.
Don’t buy BABA now if you want a quick payday. But if you have a long-term time horizon, Alibaba is surely a tempting target right now.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.
