libaba stock has fallen more than 25% off its high despite compelling fundamentals. The stock looks like it's on sale now, but is BABA stock a buy right now?
Sellers were inAlibaba(BABA) on Feb. 2 as Wall Street weighed its latestearnings report.
Adjusted earnings rose 30% to $3.38 a share. Revenue growth accelerated for the third straight quarter, jumping 46% to $33.87 billion. Revenue for the company's cloud computing business grew 50% year over year to $2.47 billion.
"Our cloud computing business continues to expand market leadership and show strong growth, reflecting the massive potential of China's nascent cloud computing market as well as our years of investment in technology," Alibaba CEO Daniel Zhang said in a press release.
Alibaba stock jumped 3.5% on Feb. 3 after the company's fintech arm, Ant Group, struck a deal with Chinese regulators to restructure and become a financial holding company. Ant Group operates a suite of financial products, including the widely used Alipay digital wallet in China.
Sellers Hit BABA Stock
Sellers knocked Alibaba stock lower on Nov. 3 after the $34.5 billion Ant Group IPO was suspended in Shanghai and Hong Kong. The decision to suspend the IPO came after Shanghai exchange officials said it would halt the listing due to the company's inability to fulfill conditions amid changes in the regulatory environment.
Sellers were in Alibaba stock again on Nov. 5 after the companyreported earnings and missed on sales.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba andJD.com(JD), among others. It's had a hard time attracting buyers since then.
Alibaba Stock Fundamental Analysis
With a five-year annualized earnings growth rate of 29% and a sales growth rate of 47%, it's hard to find a company with a more impressive track record of growth than Alibaba. It's been a big winner since its IPO in September 2014.
Expectations were high for Alibaba's Singles Day annual shopping event in November, and the company didn't disappoint as sales nearly doubled from the year-ago period to $74 billion.
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'scloud-computing businessis showing solid growth, just like Amazon's booming web services business.
Alibaba also sees dollar signs in food delivery. In 2018, it merged its food delivery service Ele.me with its lifestyle app Koubei to better compete withTencent(TCEHY)-owned Meituan.
Sales at Alibaba's digital media and entertainment unit are also rising. The unit includes Alibaba's videostreaming platform Youku, along with its music streaming service, Xiami. Alibaba also has a licensing agreement withWalt Disney(DIS) unit Buena Vista International, giving it access to a large amount of Disney content.
And just like Amazon, Alibaba sees potential in the sports streaming market. In 2018, the company partnered with China Central Television and streamed all matches of the 2018 FIFA World Cup. Alibaba said the World Cup, as well as continued investment in original content, fueled daily average subscriber growth of 200% for Youku.
Top-Rated Stock
Alibaba's Composite Ratingof 63 (scale of 1-99 with 99 being the best) has been hurt by sluggish price performance in recent months.
Still, for a megacap stock, Alibaba continues to deliver torrid growth. But earnings and sales growth slowed dramatically in May, hurt by the coronavirus outbreak. Adjusted profit inched up 2% year over year to $1.30 a share. But that was well above the consensus estimate of 85 cents. Revenue increased 16% to just over $16.14 billion, also above expectations of $15.1 billion.
But earnings and sales growth accelerated nicely when the company reported earnings in August. Quarterly profit increased 15%, with revenue up 30% to $21.76 billion.
Alibaba breaks down its revenue into four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment and Innovation Initiatives. Core commerce revenue jumped 34% to $18.9 billion. Cloud computing revenue increased 59% to $1.75 billion.
Mobile monthly active users totaled 874 million, up 15.8% from the year-ago quarter and 3.3% sequentially.
Top Fundamentals
Annual return on equity of 21% and pretax margin of 31.3% help its top-notchSMR Rating(sales + margins + return on equity) of A fromIBD Stock Checkup. With Stock Checkup, you can easily see who the group leaders are based on a combination of fundamental and technical factors.
For its current fiscal year 2021,earnings per shareare expected to jump 38%, with 15% growth seen in fiscal 2022.
Etsy(ETSY) is a top-rated stock in IBD's internet retail group, according to IBD Stock Checkup, along with China-basedJD.com(JD),Vipshop(VIPS) andShutterstock(SSTK).
Alibaba Stock Technical Analysis
After a heavy volume breakout for Alibaba stock in late November 2019, thecoronavirus stock market crashbrought sellers into the stock. But Alibaba, a member of IBD'sLong-Term Leadersportfolio, soared out of a 24-week consolidation in July.
A 36% pullback for Alibaba stock in the second half of 2018 shook out a lot of sellers in the stock and ultimately served toreset the base count.
Alibaba broke out of aflat basewith a 268.10 buy point during the week ended Aug. 28. It rallied for a bit, then started to pull back with the broad market. A new flat base formed with a 299.10 buy point, although an early entry was seen when Alibaba stock gapped up on Sept. 30.
Improving RS Line
Alibaba stock has been on a sharp downtrend since hitting a high of 319.32 in late October.
Alibaba'srelative strength linehas also been trending sharply lower. A stock's relative strength line, found in daily and weekly charts atinvestors.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.
The bottom line: With Alibaba stock still far off its high and below its recently converged 50-day and 200-day moving average lines, Alibaba is not a buy now because it still hasoverhead supplyto work through.
Risk averse investors will wait and see if Alibaba can get back into rally mode and fully form the right side of abase. Renewed signs of institutional buying would help the stock's cause, but there aren't any signs of it yet. An early entry would be seen if Alibaba stock can move above its recent high of 274.29.