A few weeks ago, I wrote a piece about why Alibaba Group Holding Ltd (NYSE:BABA) was a buy. Since then, BABA stock has continued its upward climb. Putting it all together, as of its close on May 31, the BABA stock has gone from $122 per share a year ago to $198 per share — good for a sweet 62% gain.
On top of that, BrandZ released its annual ranking of the most valuable brands in the world this week, with Alibaba’s value nearly doubling to $113 billion.
Per CNN Money, this was good enough for the ninth spot on the list and not far behind stalwarts like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NYSE:MSFT) and Facebook, Inc. (NASDAQ:FB).
Of course, anyone that’s been following the e-commerce giant should hardly be surprised. It’s been called the “Amazon of China” enough times to lose count, with both internet retailers spending big coin on physical locations these days. And a Morgan Stanley report recently pointed out that both companies are moving into Southeast Asia, Latin America and Australia, seeking growth.
The good news for BABA stock? The report said Alibaba’s total addressable market in China is greater than Amazon’s total global opportunity.
Alibaba’s Investments
To that end, on Tuesday, Alibaba announced it would pay almost $1.4 billion for a 10% stake in Chinese logistics firm ZTO. And the deals just keep on coming.
On Wednesday, BABA announced that it had tossed over $26 billion to SQream. SQream is a database company Alibaba had already inked a cloud deal with. And the Alibaba City Brain project — which aims to “let artificial intelligence control a city,” as Wired put it — is being rolled out to Malaysia.
Those investments aren’t cheap. The company’s spending has been growing and is weighing on its bottom line in the short term. BABA stock currently sports a forward P/E of 23, with annual earnings growth slated for just 4% per year for the next half-decade.
I am confident those investments will pay off, though. As I mentioned in my last piece, the company’s sales growth is mouth-watering, and it has plenty of room for expansion. The unfortunate reality for tech is that it requires a lot of infrastructure and investment for the next frontier of commerce — a seamless merger between online and offline.
Bottom Line on BABA Stock
I’d be more worried if Alibaba wasn’t investing the capital it is. While such a strategy would mean juicer EPS in the near term, it would also be immensely shortsighted.
The bottom line? Alibaba is still a buy.
As of this writing, the author was long BABA.
