Alibaba Stock Looks Cheap Here and Its Upside Is Substantially Higher

  • Alibaba (BABA) stock reported much lower earnings for the fourth quarter on a year-over-year basis on Feb. 24, but the stock is rising
  • Analysts still expect the stock to do well over the next year, with the average price target 60% higher than March 30 numbers
  • The company’s newly upsized buyback program was announced on March 22, raising it to $25 billion from $15 billion
Zombies and Bears Beware, Alibaba Stock Will Still Defeat You!
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Alibaba (NYSE:BABA) has started rising from its trough price of $76.76 on March 15. By March 30, BABA stock was up to $116.58, and analysts seem to be impressed with its latest earnings release and its new upsized buyback program.

Moreover, the average analysts’ price targets are now substantially above where the stock trades as of March 30.

BABA Alibaba Group Holding Limited $111.19

Recent Alibaba Earnings and Buybacks

On Feb. 24, Alibaba reported 10% higher revenue for Q4 ending Dec. 31. Most of the revenue growth came from its China segment, which grew 7%. However, the cloud division revenue grew by 20% year-over-year.

In addition, the Alibaba Ecosystem across the world reached approximately 1.28 billion.

Moreover, on March 22, Alibaba announced that it will “upsize” its share buyback program from $15 billion to $25 billion. However, the company did not state the time frame for the new buyback program other than that the authorization was good for two years. It did not state how long Alibaba would execute the program, nor how much of the $15 billion program was left to be executed.

Nevertheless, it leaves the impression with analysts and the public that more share buybacks are in the works for the company. This has helped push up the stock off of its recent lows.

Analyst Estimates

For 2022, Refinitiv’s survey of 27 analysts published by Yahoo! Finance has an average forecast of $133.96 billion in revenue. That represents a growth rate of 20.96% over 2021 at $110.75 billion in sales.

Moreover, earnings for 2022 are forecast to fall to $8.25 from $10.06 according to Yahoo! Finance. At March 30’s price, that puts BABA stock on a forward price-to-earnings (P/E) of about 14.1 times 2022 earnings.

This is well below the 36.69 average P/E over the past five years, as reported by Morningstar.

However, the average price target of 49 analysts is $186.13, according to Refinitiv. That represents an upside of 60% over March 30’s price. TipRanks indicates that 18 Wall Street analysts have written on BABA stock in the last three months. Their average price target is now $169.76. That represents a potential upside of 45.6% for investors in the stock.

Where This Leaves Investors in BABA Stock

At this point, investors in BABA stock are somewhat inured to the continual drifting downward of the stock. The recent buyback announcement helps them believe that the company thinks its stock is undervalued.

Moreover, even if the stock was to trade at just half of its average P/E of 36.7 over the past five years, Alibaba would have a forward P/E of 18.35x. That implies that it would trade at 18.35 times forward earnings, or 30% over where the stock was March 30 at 14 times forward earnings.

This puts the value of BABA stock at $151.55 or 30% over its March 30 price. But it also leaves a good margin of safety since this values it at half of the average P/E over the past five years. If the market eventually prices BABA stock at three-quarters of this average, the upside could be considerably more.

Either way, this makes BABA stock a rare find for long-term value investors who believe that the stock will eventually move back up to its historical valuation metrics.

Moreover, assuming the world does not go into a global recession over the next year, analysts’ projections for sales and earnings are substantially too low. In that case, the market will move BABA stock even higher as analysts adjust their forecast for earnings. That will give investors a greater than 30% potential upside in Alibaba.

On the date of publication, Mark Hake did not hold (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 Publishing Guidelines.

Mark Hake writes about personal finance on, and

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