Why Alibaba Stock Has Plenty More Upside

Why Alibaba Stock Has Plenty More Upside

Jack Ma led Chinese eCommerce giant Alibaba Group Holding Ltd (NYSE:BABA) has had a mind-boggling single’s day sales which seem to justify itsprice to earnings multiple of 62. BABA stock investors too are a happy lot with the share price doubling in the year. We had rightly hinted in our earlier coverage that Alibaba is all set to have record-breaking single’s day sales. However, Alibaba stock has failed to take off since reporting impressive numbers. This brings us to the question, is the upside in Alibaba stock limited from here?Well, if you go by some of the latest industry trends, the strong revenue and earnings growth of the Chinese online retail giant is to continue for some time now, which is likely to drive BABA stock higher.
BABA revenue chart

Cross-Border eCommerce spending: a strong tailwind for Alibaba’s core commerce segment.

In the fiscal 2018 second-quarter earnings release, Alibaba’s China retail revenue grew 64% YoY. This forms the bulk of the Chinese behemoth’s revenues. Now, if a latest eMarketer report is anything to go by, then Alibaba’s core commerce segment could likely continue growing its revenues at high rates in the coming quarters as well. The report suggests that cross-border eCommerce spending in China to top the $100 billion threshold in 2017. The eMarketer estimates state that “Average spend per buyer has increased since eMarketers previous forecast due to the growing awareness of overseas brands in China, as well as better logistics and the perception that foreign goods are of better quality.” The study also finds the popularity of Alibaba’sTmall Global as one of the factor’s driving these pattern. This could be astrong tailwind for the online retail giant.

Cross border eCommerce spending

Further, SunTrust Robinson Humphrey analysts’ in their recent note to clients commenting about the single’s day sales wrote: “there was a 4x multiple of growth in the sale global brands, and strength in cross-border trade as more and more Chinese shoppers use mobile devices.” They are of the opinion that this could result in better than expected China retail revenuegrowth in theDecember quarter which hints at more upside potential in BABA stock if the momentum is sustained. The eMarketer study further boosts the above stance as the cross-border eCommerce spending tailwind is likely to last longer.

Single’s day sales set up Alibaba for another blockbuster earnings.

Alibaba registered nearly 40% YoY increase in GMV on its single’s day but the stock has not moved much following single’s day sale. However, this also means one expect another blockbuster earnings release in January.To put things into perspective as seen in the image below, the Chinese company tops Amazon (NASDAQ:AMZN) Thanksgiving and Black Friday sales combined. This is the proportion of difference with which Alibaba is growing its GMV. Amazon’s annual Prime Day sale was estimated to have moved $1 billion worth of goods only.Raymond James analysts wrote that BABA stock’s underperformance even after strong sales was due to the fact that “market already knows that the Chinese consumer is buying more”, which is also reflected in the 100% rise in the market. However, they reiterated their strong buy rating on Alibaba stock and it is only matter of time Alibaba stock goes past the psychologically important $200 mark.

singles day vs cyber monday and black friday sales

Alibaba stock finds strong support.

We did suggest in our recent coverage that Alibaba stock could come under pressure recently due to the technical set up. However, BABA stock technical chart now hints at some positive signals. Alibaba stock has found support at its 50-day simple moving average (SMA). In the last trading session, the share price bounced back from the 50-day SMA which has acted as a strong support level for the majority of 2017. Alibaba share price has only breached the 50-day SMA only once this year, in October. The stock is likely to head higher from here.

BABA Technical chart

To sum up, Alibaba stock continues to be an attractive investing idea for growth investors.Though theBABA stock has doubled for the year, the stock may continue climbing higher. At these levels, Alibaba stock may not appear cheap but given its just trading 28 times the forward earnings, there is potential for plenty of more upside given the impressive revenue and earnings growth coupled with the tailwinds the company is enjoying.

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