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Alibaba Stock Won’t Be Left Behind Smaller Rivals Forever

This year has been somewhat quiet for Alibaba (NYSE:BABA). Alibaba stock has gained a little less than 5%. That’s a solid performance, given some broad indices remain negative year to date. But it’s surely not what bulls hoped for at the beginning of the year.

Alibaba Stock Won't Be Left Behind Smaller Rivals Forever

Source: Kevin Chen Photography /

Alibaba has seen some volatility along the way. From January highs to March lows, the stock dropped a little over 25%. But many quality names saw much bigger moves. Relative to the market as a whole, Alibaba’s stock just hasn’t stood out.

At this point, perhaps that’s not all that surprising. Alibaba is the sixth-most valuable company listed on U.S. exchanges. Its market capitalization is larger than those of giants like Visa (NYSE:V) and Johnson & Johnson (NYSE:JNJ). The company accounts for a staggering percentage of the Chinese economy: over 5%.

Based on size alone, investors shouldn’t expect sizzling returns from Alibaba stock. They should expect more muted volatility. That’s pretty much how 2020 has played out.

That said, looking at the company’s peers, Alibaba’s performance seems surprising — and even disappointing. And that relative performance suggests that the stock should have another rally ahead in the not-too-distant future.

Alibaba’s Peers Soar

Again, it’s easy to argue that Alibaba’s YTD performance makes sense. The impact of the coronavirus pandemic and the on-again, off-again trade war on the Chinese economy have kept a ceiling on upside. But the quality of the business kept drawdowns relatively manageable, even as investors panicked in March.

But that story starts to fall apart when taking even a cursory look at the company’s peers. Other Chinese e-commerce plays have soared. (NASDAQ:JD), which sits behind Alibaba in terms of market share, has gained a sizzling 72% so far this year. It held up even better in March than Alibaba stock.

Upstart Pinduoduo (NASDAQ:PDD), meanwhile, has gone parabolic. PDD stock has rallied 127% in 2020. The stock has nearly tripled from March lows.

Clearly, investors are bullish on Chinese e-commerce. Indeed, they’re bullish on Chinese tech more broadly. With the exception of Baidu (NASDAQ:BIDU), basically every large-cap tech stock in the country has outperformed Alibaba in 2020.

If Alibaba was performing poorly, that might make some sense. That doesn’t appear to be the case. Fiscal-fourth-quarter earnings last month handily beat analyst estimates. Alibaba stock sold off anyway.

Pinduoduo, in particular, has gobbled up some market share. But it’s also a far smaller company that is growing off a smaller base.

The performance of Alibaba stock relative to Chinese tech plays is surprising. And it undercuts any real bear case. If investors were bearish on e-commerce, PDD and JD wouldn’t be soaring. If they feared the Chinese economy more broadly, smaller names would be selling off across the board.

That’s not what’s happening. That in turn suggests that Alibaba should catch up at some point.

Alibaba vs. Amazon

Of course, there’s also the comparison to Amazon (NASDAQ:AMZN).

To be sure, the two companies are not quite as equivalent as some observers claim. Alibaba is not quite the “Amazon of China.”

That said, AMZN stock has gained 49% so far this year. It has added about $450 billion in market value in six months, a figure equal to nearly three-fourths of Alibaba’s market capitalization.

And while the two companies have their differences, there are two core reasons why AMZN stock has soared. The pandemic has accelerated e-commerce adoption. Just as importantly, if not more so, its accelerated cloud adoption.

Alibaba has those exact same drivers. Obviously, it’s an e-commerce giant. And as I detailed earlier this year, it’s investing heavily to extend its early dominance in the cloud business in Asia.

Yet — again — the stock hasn’t been rewarded. Amazon’s stock has. Here, too, the divergent performance doesn’t make a ton of sense.

Alibaba Stock Looks Like a Long-Term Buy

As a result, it seems like there are two potential outcomes. Either Alibaba stock rallies sharply and catches up to these other names. Or those other names decline due to unsustainable gains of late.

The latter outcome admittedly isn’t impossible. There is no shortage of skeptics toward Amazon’s valuation. Some investors see cause for caution toward China more broadly.

But I’m not one of those investors. China still literally has hundreds of millions of citizens that are headed for the middle and upper classes. Their increasing disposable income creates a long-term tailwind for Alibaba sales.

Meanwhile, the company’s stock traded at an enormous discount to Amazon, even heading into this year. The gap now is even wider.

And at some point, that gap will close. And it’s most likely to close because Alibaba stock rallies, not because Amazon stock tumbles.

It seems like right now, investors are chasing the “hot” names, and ignoring the biggest and best operator in China. That will change, and it’s then that Alibaba stock will get the credit it deserves.

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 (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. 

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