Alibaba (BABA) surged in early trading Thursday after Chinese President Xi Jinping said the country would do more to stimulate the economy to reach its economic targets. But is BABA stock a buy right now?
Alibaba jumped on June 17 but pared early gains after Reuters reported that China’s central bank accepted Ant Group’s application to set up a financial holding company.
In early November 2020, the $34.5 billion Ant Group IPO, the fintech arm of Alibaba, was suspended in Shanghai and Hong Kong. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
Sentiment was also positive around Alibaba stock and other Chinese stocks like JD.com (JD) and Pinduoduo (PDD) in late April after Bloomberg reported that Beijing is in talks with the U.S. to allow regulators to conduct on-site audits of U.S.-listed Chinese firms.
Alibaba Stock: Recent Earnings
Alibaba stock gapped up in late May after the company reported adjusted profit of $1.25 a share, down 20% from the year-ago quarter but above the consensus estimate for $1.07. Revenue increased 13% to $32.2 billion, helped by strength in its domestic e-commerce business.
In a sign of confidence about its business, Alibaba announced it would increase its buyback program to $25 billion from $15 billion. It’s already bought back 56.2 million shares for $9.2 billion.
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The company’s earnings report on Feb. 24 failed to attract buyers although BABA stock did close well off lows after falling nearly 9% intraday. Adjust profit fell 22% from the year-ago quarter to $2.65 a share. Revenue increased 13% to $28.2 billion. Cloud revenue slowed from the prior quarter, up 20% to $3.08 billion.
Sellers Hit BABA Stock
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks for the past couple of years. Besides a strict regulatory environment, Chinese stocks are also dealing with a slowing economy, Covid shutdowns, supply-chain issues and inflation.
In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend, but the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com, among others.
Alibaba soared 10% on Dec. 6 on news of a management shakeup and an overhaul of its ecommerce business. Maggie Wu departed as chief financial officer in April. She was replaced by Toby Xu, who joined Alibaba in July 2018 and was appointed deputy chief financial officer in July 2019.
Alibaba also announced plans to restructure its ecommerce operations by forming two new digital commerce divisions, focused on international and domestic markets.
Meanwhile, investor reaction was tepid to the company’s Investor Day on Dec. 16-17. Soon after, BABA stock slumped nearly 4% on Dec. 22 after China’s IT regulator disciplined the company for not reporting an open-source security vulnerability to the government.
Alibaba Stock Fundamental Analysis
It’s hard to find a company with a more impressive track record of growth than Alibaba. The company has a five-year annualized earnings growth rate of 22%, although revenue growth has slowed in recent quarters
Expectations were high for Alibaba’s Singles Day annual shopping event in November, China’s biggest shopping day. The company didn’t disappoint with sales of $84.5 billion, up from $74.1 billion in the year-ago period.
The company has been able to stay in growth mode despite a slowdown in its core e-commerce business.
Alibaba’s business in China looks a lot like Amazon’s in the U.S. Alibaba’s cloud-computing business is showing solid growth, just like Amazon’s booming web services business.
BABA Stock: Sluggish Ratings
Alibaba’s Composite Rating of 54 (on a scale of 1-99 with 99 being the best) has been hurt mainly by weak price performance in recent months.
Annual return on equity of 15% helps it earn a solid SMR Rating (sales + margins + return on equity) of B from IBD Stock Checkup (on an A-to-E scale with A tops).
The Stock Checkup tool quickly identifies group leaders based on a combination of fundamental and technical factors.
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For its current fiscal year 2023, Alibaba is expected to earn $7.07 a share, down 15% compared to fiscal 2022. But growth is expected to pick up in 2024, up 19% to $8.43.
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Alibaba Stock Technical Analysis
Alibaba’s relative strength line has started to point upward after BABA stock topped in October 2020.
A stock’s relative strength line, found in daily and weekly charts at Investors.com, compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba stock broke out over a trend line on May 26, helped by a strong earnings report. It didn’t take long for BABA stock to reclaim its 50-day moving average.
Alibaba’s Accumulation/Distribution Rating is A-, helped by several above-average volume price gains in recent weeks.
BABA Stock: Is It A Buy Now?
The issue for Alibaba stock now is that it’s still below its 200-day moving average, a potential resistance level to watch.
Overhead supply is also an issue for BABA stock, with Alibaba more than 50% off its high. But a small position with a tight stop about 5% below the entry makes sense as BABA stock enjoys renewed signs of accumulation.
Follow Ken Shreve on Twitter at @IBD_KShreve for more market insight and analysis right now.
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