Alibaba Group Holding Limited (BABA) Buy or Sell Stock Guide

Last updated: Jan 24, '19

The analysis below may be helpful to you if you have any of the following questions about BABA stock:

  • Is BABA a buy or a sell?
  • Should I sell or hold BABA stock today?
  • Is BABA a good buy / a good investment?
  • What are BABA analyst opinions, recommendations, ratings?

Here are BABA stock buy reasons/signals:

1. Alibaba serves about 80% of the Chinese e-Commerce market where population density is very high. E-Commerce Index reveals which developing markets hold the most potential for online growth, and China is now leading the race in terms of maximizing the potential of the Internet compared with the West. The low-cost, widely available telecommunication infrastructure in China has increased the popularity of online shopping.

2. Alibaba’s Gross Merchandise Value (GMV) is very solid. GMV is defined as the total value of transactions made across the company’s marketplace. It is a very important metric for e-Commerce companies.

3. Alibaba continues to witness increasing monetization rates (i.e., the amount Alibaba earns from the sale of goods on its platforms is going up). The company’s focus on foreign brands and high-quality merchants on its platforms continue to increase the online marketing inventory on both mobile and the PC, thus further improving the monetization rate.

4. Alibaba has been supplementing organizational growth with strategic acquisitions. The company spent billions on acquisitions last year in varying sectors ranging from film production to taxi-booking services to professional soccer.

5. We expect Alibaba’s payment platform will continue to grow, driven by the move toward online shopping all over the world. Its online payment platform includes a lot of services like bank transfers, Alipay account transfers, payment of credit card and utility bills at no extra cost, mobile top-up with credit, bank balance check, bus ticket purchases, online checkout on many sites and in-store payments. Moreover, Alibaba has made full use of the exponential increase in smartphones and tablets for making payments.

6. Alibaba is also taking steps to strengthen its position outside China. The company has been looking to international markets to expand its business and its current strategy is to generate earnings through investment in the U.S.

7. Increased competition and market saturation has forced Alibaba to move beyond hawking goods online. The company is trying to build its business as an ecosystem of retail, cloud and artificial intelligence. Having been around long enough to establish logistical relationships through Cainiao, payments processing through Ant Financial and a solid core commerce model, Alibaba has been guzzling data that it is in an increasingly better position to use for improving customer experience and feeding its AI initiatives.

8. Alibaba is working on the development of what it calls “New Retail” to bridge the gap between online and offline shopping using its big data capacity. It expects that the system will offer brick-and-mortar retailers new ways to evolve across marketing, inventory and distribution networks. These look promising and will not only reshape the retail landscape but also help Alibaba fend off competition.

9. BABA quarterly revenue growth was 54.50%, higher than the industry and sector average revenue growth (5.03% and 5.43%, respectively).

10. BABA profitability is improving. The YoY profit margin change was 25.57pp.

11. BABA average analyst rating is Strong Buy.

12. BABA average analyst price target ($203.73) is above its current price ($152.03).

Here are BABA stock sell reasons/signals:

1. Alibaba's corporate structure entails certain risks because of the Chinese laws. According to those, it is illegal for a foreigner to own stocks in any Chinese Internet company, which implies that a foreign investor cannot be a real stockholder in Alibaba. Therefore, all foreign investors who bought Alibaba shares on the NYSE actually purchased stocks of the holding company called Alibaba Group Holding Ltd registered in the Cayman Islands and not that of the actual Alibaba.

2. Alibaba completed a number of acquisitions over the past year and while these acquisitions are augmenting its key capabilities and enabling it to expand both in China and internationally, integration risks remain. Moreover, the acquired businesses bring additional costs that are likely to add to its costs in the near term.

3. Alibaba is already facing tough competition from the likes of Tencent Holdings. As the company continues to expand into the U.S., it will increasingly be up against well established competitors such as eBay and Amazon. Also, Alibaba competes with PayPal on the mobile payment system front.

4. BABA Price/Sales ratio is 8.18, and it’s high compared to its industry peers’ P/S ratios.

5. BABA PEG ratio (P/E adjusted for growth) is 56.96, and it’s high compared to its industry peers’ PEG ratios.

6. BABA short interest (days to cover the shorts) ratio is 4.96. The stock garners more short interest than the average industry, sector or S&P 500 stock.

What are your thoughts on BABA?

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