Alibaba Group Holding Limited (NYSE:BABA) stock looks attractive given the company’s upside potential from here

Alibaba Group Holding Limited (NYSE:BABA) stock looks attractive given the company’s upside potential from here

Alibaba Group Holding Limited (NYSE:BABA) stock looks attractive given the company’s upside potential from here

Alibaba (NYSE:BABA) posted solid earnings and cash flow growth for the September 2019 quarter. Alibaba stock looks attractive given the company’s upside potential from here.

Analysts put the stock’s potential at $200 per share, up almost 14% from today’s price.

According to the report, revenue was up 40% YoY to $16.65 billion. This was slightly below the previous quarter revenue of $16.74 billion. But BABA’s free cash flow in the September quarter was $4.3 billion, up 12% from the prior quarter’s $3.84 billion.

This means that the free cash margin increased from 23% to 25.8% this quarter over the prior quarter. That is very positive news. It is also an extremely high level of free cash flow per dollar of revenue.

For example, Amazon (NASDAQ:AMZN) just reported $5.2 billion in free cash flow for its latest quarter on sales of $56.6 billion in sales. That means its FCF margin is just 9.3% compared to BABA’s 25.8% FCF margin. And note that BABA has only 30% of the quarterly sales compared to AMZN.

Given Alibaba’s strong recurring revenue, earnings, and free cash flow as well as its high margins on revenue, Alibaba stock is worth much more than today. In addition, there seem to be many more customers Alibaba can reach over the next three to five years  – 1 billion is their target – before Alibaba reaches any level approaching saturation.

One analyst believes that the near term sum-of-the-parts is $200 per share. This represents a potential upside of 13%. I have shown that compared to Amazon, Alibaba stock is worth anywhere from $257 to $376 per share.

The average of these three valuations is $284 per share, or 61% upside from today’s price. Assuming it takes 3 years to reach this level, the average annual gain in Alibaba stock is 17.1% per year. That is a great potential return for most investors.

Technical Indicators

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 171.79.

The projected upper bound is: 192.32.

The projected lower bound is: 172.32.

The projected closing price is: 182.32.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 22 white candles and 27 black candles for a net of 5 black candles.

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 63.0989. This is not an overbought or oversold reading. The last signal was a sell 3 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 61.51. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 64 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 136.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 5 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 16 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed up 2.310 at 182.000. Volume was 69% above average (neutral) and Bollinger Bands were 18% narrower than normal.

Open     High      Low     Close     Volume___
181.670 183.200 180.311 182.000 4,919,503
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 176.47 173.71 172.71
Volatility: 20 37 37
Volume: 3,399,184 2,648,725 3,236,168

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

ALIBABA GRP ADR is currently 5.4% above its 200-period moving average and is in an upward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect moderate flows of volume into BABA.N (mildly bullish). Our trend forecasting oscillators are currently bullish on BABA.N and have had this outlook for the last 5 periods.

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