pool adsIs Alibaba Group Holding Ltd (NYSE: BABA) Currently Undervalued?
Alibaba Group Holding Ltd (NYSE: BABA) is a Chinese e-commerce giant that is widely popular in China just as Amazon.com, Inc. (NASDAQ: AMZN) is popular in North America and Europe. Although many analysts might believe that the company is expensively valued given that it currently trades at a P/E ratio of 43.60, we disagree with this assessment due to the massive growth opportunities that are at Alibaba’s disposal.
An easy way to substantiate our thesis is to compare Alibaba’s current P/E ratio to Amazon.com given that the US e-commerce giant currently trades at a P/E ratio of 312.74. This simple comparison validates our assessment, but we will not stop here in our analysis of Alibaba in order to establish why we believe that the company is indeed undervalued.
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Our combined analysis of Alibaba indicates that the first quarter is usually its weakest quarter as the company typically records a substantial dip in revenues and earnings in this quarter. However, the fourth quarter is usually its strongest quarter given past trends. Therefore, we expect the company’s revenues and earnings to dip in the first quarter of 2018, but this will reverse for the rest of the year.
According to our technical analysis, Alibaba’s quarterly growth rate dipped in Q4 2017 and we expect this trend to continue into the first quarter. The company’s annual growth rate was on an uptrend from Q2 2017, but is expected to dip for the rest of this year. However, our fundamental analysis of the stock tells a different story given that the company is currently in the race to acquire Ele.me.
The acquisition of Ele.me, which is a food delivery service in China, will drastically alter Alibaba’s current growth trajectory given that Ele.me is way bigger than Uber Eats. Although it is highly likely that Alibaba will acquire Ele.me at a premium valuation, the food delivery company will add billions in revenue to the company’s topline.
Alibaba has numerous growth opportunities given its foray into self-driving technologies as well as other very lucrative technology ventures. It’s only fair that the company should be priced at a growth premium.
Based on the technical data and associated charts at the time this article was written, Stock Traders Daily has provided detailed trading plans, with integrated risk controls, to its clients. These plans will change in real time as prices move. To receive an update or to review the detailed trading plans associated with this data please review our Real Time Trading Report for BABA.
Technical Summary
| Term → | Near | Mid | Long |
|---|---|---|---|
| Rating | Strong | Weak | Neutral |
| P1 | 167.88 | 163.12 | 171.70 |
| P2 | 172.56 | 182.25 | 191.58 |
| P3 | 177.34 | 200.18 | 210.76 |
Support and Resistance Plot Chart for BABA
Long Term Trading Plans for BABA
April 11, 2018, 9:53 am ET
The technical Summary and associated Trading Plans for BABA listed below will help you make important timing decisions for your trades. This data is based on our proprietary analysis for BABA. In addition we offer Market Timing Models and Stock Filters in the links above which may increase the proficiency of the decisions you make.
BABA - (Long) Support Plan
Buy over 171.70 target 191.58 stop loss @ 171.44.
The technical summary data tells us to buy BABA near 171.70 with an upside target of 191.58. This data also tells us to set a stop loss @ 171.44 to protect against excessive loss in case the stock begins to move against the trade. 171.70 is the first level of support below 177.1 , and by rule, any test of support is a buy signal. In this case, support 171.70 would be being tested, so a buy signal would exist.
BABA - (Short) Resistance Plan
Short under 191.58 target 171.70 stop loss @ 191.84.
The technical summary data is suggesting a short of BABA as it gets near 191.58 with a downside target of 171.70. We should have a stop loss in place at 191.84 though. 191.58 is the first level of resistance above 177.1, and by rule, any test of resistance is a short signal. In this case, if resistance 191.58 is being tested, so a short signal would exist.
Blue = Current Price
Red= Resistance
Green = Support
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