Alibaba Stock: Headwinds Appear Temporary

© Reuters. Alibaba Stock: Headwinds Appear Temporary

I am bullish on Alibaba (NYSE:BABA). The stock has sunk 32.3% over the past six months, presenting a good opportunity for buy-the-dip investors.

Alibaba is a leading B2B and B2C e-commerce company. The global e-commerce industry’s market size this year is $4.9 trillion, and is expected to reach $7.4 trillion in 2025.

Alibaba is currently trading at a 51% "discount" from its 52-week high of $319.32, suggesting that this could be a good time to go long on the stock. (See Alibaba’s stock charts on TipRanks).

BABA Is Undervalued

Alibaba deserves a spot in your long-term growth-at-reasonable-price, or GARP, portfolio. This stock’s forward P/E ratio is only 13.7x.

That's lower than Amazon (NASDAQ:AMZN) 51.2x, Etsy (NASDAQ:ETSY) 59.9x, and Shopify (NYSE:SHOP) 226.5x.

GARP investors should exploit this asymmetrical bias against Alibaba.

China Headwind is Temporary

Investors are overreacting to Alibaba’s regulatory problems as co-founder Jack Ma will eventually be forgiven by President Xi Jinping.

BABA’s Stochastic Oscillator score is 49.7. This technical indicator is hinting that investors are undecided, or on the sitting-on-the-fence mode.

Alibaba is Very Profitable

Based on the chart below, BABA deserves more love from investors. Its EBITDA margin is 20%, gross margin is 40%, and net income margin is 19.25%.  Alibaba has better profitability stats than Amazon.

(Source: Motek Moyen)

The growing profitability of Alibaba is why it has a Piotroski F Score of 7. This categorizes it as a strong value stock.

Wall Street’s Take

Wall Street analysts consider Alibaba a Strong Buy, based on 22 Buys, one Hold, and one Sell. The average BABA price target is $269.18, implying 73.5% upside potential.

Conclusion

Hyper-growth attributes, and growing profitability make Alibaba a very attractive investment.

This company’s undervaluation relative to its peers is an opportunity warrants attention.

Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.

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