(Note: The author of this fundamental analysis is a financial writer and portfolio manager..)
Alibaba Group (BABA) shares have fallen on tough times with shares dropping nearly 14% off their highs from early January. An Investopedia article on March 15 noted that shares of Alibaba had broken out and were set to rise, but instead, the stock went the other direction on a failed breakout. Re-examining the chart shows that shares of Alibaba may have found a bottom after retesting support around $163 and suggests that shares could rise by 15% from its current price around $174.75, taking the stock back over $200.
Analysts are bullish on Alibaba, as well, and are looking for shares to climb by 26.5% to an average price target of $223, according to data from Ycharts. Analysts are looking for significant growth rates out of Alibaba in the coming years, with revenue seen growing by nearly 30% in fiscal 2020 to $70.75 billion, while earnings are seen jumping by 28% to $8.50 per share. The significant growth rates come as the stock trades at roughly 20.8 times 2020 estimates, a low level on a historical basis.
The chart below shows how the stock has been able to bounce off of support around $163.60, rebounding over the past several months. Additionally, should the stock continue to stay above the technical support region, shares could move back into its a trading channel, allowing the stock to rebound to about $201, the next level of resistance.
The relative strength index has trended sideways now for some time and is currently at 42—neutral territory. Additionally, volume levels have been steadily declining and that may be an indication that selling pressures are waning.
Analysts Overwhelming Bullish
Analysts are overwhelmingly bullish on the stock, with 98% of the 49 analysts covering the stock rating it a buy or outperform, and have an average price target of $223.50, nearly 28% higher than the current stock price of $174.75.
Alibaba is expected to next report quarterly results May 4, and analysts are looking for earnings to grow by over 44% to $0.91 per share, while revenue is seen climbing by 67% to $9.363 billion, significant growth rates for a company of its size. Investors will also focus on forward-looking guidance, with analysts forecasting fiscal first-quarter 2019 revenue of $11.42 billion and earnings of $1.44 per share. The company currently trades at only 20.6 time fiscal 2019 earnings estimates, and that earnings multiple is at historically low levels not seen since 2016.
With earnings set to come in about a week's time, just how far shares of Alibaba rise or fall will depend on what the company has to say about the future.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.