Like most others, Ali Baba (NYSE:BABA) was hammered due to the coronavirus. However, the BAB action did not rebound as aggressively as some had hoped.
Alibaba stocks are currently at 15% of their January peak. It’s even better than the global market, with the S&P 500 down 21.5% even after its big rally on Monday 6 April.
But this performance lags behind direct competitors like JD.com (NASDAQ:JD), and similar comparisons like Amazon (NASDAQ:AMZN). These stocks are down just 8.3% and 8.6% from their respective peaks in 2020.
It could be argued that Alibaba should be doing even better than these stocks right now. Even though the virus epidemic has been a huge negative for the global economy, Alibaba has several catalysts in its favor.
Valuation of Alibaba stock
We see a fairly clear trend induced by coronaviruses: consumers want and always need things, and therefore seek them through practical channels. Indeed, the virus has forced a series of closings and quarantines that accelerate, not block, secular growth trends.
I’m talking about things like video streaming, telehealth platforms, social media, remote work solutions and e-commerce.
For Alibaba action, the company is not necessarily involved in all of these themes, but it is involved in more than one. The main driver of the business is obviously trade. Its business Tmall is a leading electronic commerce platform in China, a country that has four times the population of the United States and a growing middle class.
In addition to this, Alibaba leverages its overall revenue through other outlets, such as digital entertainment and cloud computing. In this sense, it is similar (but not identical) to Amazon. I’m not the type to fight the market, but it seems that Alibaba should do at least as good as its peers, if not better.
When the market goes down, BABA may continue to underperform. But this is all the more reason to consider a long-term position in Alibaba.
In its latest mid-February earnings report, Alibaba reported a 38% increase in revenue and 49% increase in revenue. The company also reported a 49% increase in its free cash flow. With a final profit of $ 7.50 per share, the Alibaba share is trading at 26.6 times the profit.
It’s too expensive? For such impressive growth in large-scale secular growth themes, many will say no. In times of uncertainty, like now, many will say yes – especially for a foreign entity.
Let’s look at the graphics.
Negotiate BABA actions
The graphics improve for BABA stocks as the stocks go up and try to recover the $ 200 area. Personally, I don’t think the market has been so rational. Employment figures were poor and reports of unemployment claims were also dismal.
The global economy has slowed and this will not cause an overnight recovery. But I’m not a cursed and somber investor, and the market is a forward-looking investment vehicle.
What I mean by that is that investors will be looking beyond the next six months for bad news and bad income and playing for the rebound to come. In other words, stocks are not at their lowest when the economic numbers are at their lowest, it is before.
However, I have reservations about the current rebound. If it ends up faltering, those looking to buy Alibaba shares will likely get a better price. Probably something in the $ 175 to $ 185 range, which is between the 50 and 150 week moving averages.
The latter has been strong support in recent years and also comes into play near the uptrend support (blue line). For me, it would be a better buying opportunity, even if I consider Alibaba stock as a leader in China and a long-term winner.
If stocks continue to fall during the 150-week moving average, a new test of the low of $ 170 is possible. Below that and the 200-week moving average is possible. On a continuous upward trend, see if the Alibaba stock can push back the resistance to the downward trend (black line). Above involves $ 220 and more.
Bret Kenwell is the director and author of Future Blue Chips and is on Twitter @BretKenwell. At the time of this writing, Bret Kenwell had no holdings in any of the titles mentioned above.