(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Alibaba Group Holding Ltd. (BABA) shares could be set to rise by nearly 12 percent after news broke the company may look to list its stock in China. This would create a secondary listing for the e-commerce giant, but the listing would only happen should current Chinese law change.
The stock is surging by almost 5 percent on the day, climbing to $201. Analysts are very bullish on Alibaba as well, and see shares rising to nearly $226.
According to an article in the Wall Street Journal, Alibaba is evaluating ways to list its shares in China. The report notes that current businesses incorporated overseas are not allowed to sell stock to local investors, and can not have a dual class of stock. Alibaba is incorporated in the Cayman Islands. (See also: China to Woo Foreign-Listed Tech Giants Back Home.)
Currently, 96 percent of the 51 analysts covering the stock gave Alibaba a "buy" or "outperform" rating, with only 2 rating it a "hold." The average price target on the stock is $226.44, according to data from YCharts.
The stock's bullish outlook is fueled by big growth expectations, with analysts looking for 2018 earnings to climb by nearly 56 percent, and revenue to surge by almost 70 percent. Earnings are expected to grow by 29 percent in 2019, and 27 percent in the year 2020.
Alibaba has been rising in a well-defined trading channel for some time, and the stock is currently trading at the lower end of that channel. Should the stock continue to advance along its current trend to the upper end of the trading channel, shares could rise to nearly $220 by late April.
Further, with the relative strength index (RSI) currently around 60, the stock is not close to overbought levels yet, as the RSI would need to rise over 70 for that to happen.
Bullish Options Bet
One options trader is betting the stock will continue to rise as well, with nearly 7,200 call contracts trading at the $210 strike price, which is set to expire on May 18. That's nearly double the current open interest of only 4,300 contacts. The options cost about $7.50, and that would mean the stock would need to rise above $217.50 to make a profit. The bet is not small, either, with a notional value of about $5.5 million that represents about 72,000 Alibaba shares.
Momentum appears to be shifting to Alibaba's favor, suggesting the stock price is likely to rise over the short to medium term driven by a longer-term outlook for substantial growth. But remember, anytime momentum turns bullish quickly, it can evaporate even faster.
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.