(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Alibaba Group Holding Ltd. (BABA) continues to soar, with its stock now up nearly 13% in 2018, and over 60% in the past year. Analysts see even more gains for the e-commerce giant, rising by as much as 18%, sending the shares to a record $238, from its current price around $195.
Alibaba reported better than expected fourth quarter results on May 4, beating on both the top and bottom lines. Earnings per share came in at $0.90, about 2.6% better than estimates, while revenue topped forecasts by 4%. The better than expected report resulted in analysts upping their price target and revenue estimates for fiscal 2019. (For more, see also: Alibaba's Top Competitors.)
Since reporting results, analysts have upped their average price target on the stock by about 4% to $238 per share, up from $223. Of the 49 analysts that cover Alibaba, 98% rate shares a "buy" or "outperform," while only one analyst rates shares a "hold."
Analysts now expect the company's revenue to grow an astounding 56.1% in fiscal 2019 to $61.43 billion, up by 13% over the past 30 days. Analysts have also upped their outlooks for fiscal 2020, and forecast revenue to grow by 35% to $85.99 billion, up by 17%.
Margins Impact Earnings
Surprisingly, analysts have cut their earnings outlook for 2019, reducing earnings estimates by roughly 3.4% to $6.50 per share, giving the company earnings growth of about 26%. But forecasts are looking for earnings to accelerate in 2020, increasing by nearly 32%. One of the likely reasons why analysts have lowered their outlook for earnings in the current year, is that Alibaba's gross profit margins fell substantially over the past quarter, to their lowest level since becoming a public company, 47.5% down from 57.75% in the prior quarter.
Nearing a Technical Break Out
Technically the shares of Alibaba have been stuck in a trading range between $165 and $202 since the end of January. It appears that shares are setting up to breakout, finally rising above $202, and moving on to new record highs, perhaps as high as $220, about 10% from its current price. Additionally, the relative strength index has yet to hit overbought levels, with the reading still below 70. That too would suggest shares may have further room to rise before tiring out. Should the stock fail to breakout, it may result in shares falling back to the lower end of the range around $165, a drop of about 17%. (For related reading, see: Alibaba Inks Deal With Alibaba Pictures Group.)
For now, the analysts and the charts seem to agree, Alibaba's stock is well positioned to rise to new record heights.
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.