Alibaba Group Holding Limited (NYSE:BABA) Stock Offers Investors a Beautiful Buying Opportunity

Alibaba Group Holding Limited (NYSE:BABA) Stock Offers Investors a Beautiful Buying Opportunity

Alibaba Group Holding Limited (NYSE:BABA) Stock Offers Investors a Beautiful Buying Opportunity

After a recent bounce, Alibaba (NYSE:BABA) is down almost 20% from its 52-week highs. That’s notably better than the S&P 500, which is down about 27% from its highs. Given all the circumstances at the momentum, it’s hard to determine if Alibaba stock is outperforming or underperforming expectations.

While Alibaba is easily outperforming the S&P 500, it’s lagging what many would consider its peers. For instance, JD.com (NASDAQ:JD) is down just 6.5% from its highs, while Amazon (NASDAQ:AMZN) is down 11.3%.

So while there are some positives with Alibaba’s performance, there are some questions as well.

China Is Booming

Before getting into Alibaba, something must be said about the bigger picture here. The company operates out of China, which surely every investor knows at this point. With a population of 1.38 billion, it has the most people of any country on earth. China’s middle class is booming and growing at a staggering rate.

China's growing middle class
China’s growing middle class

For illustrative purposes, check out these two charts. The first shows the sheer size of China’s middle class. In 2002, the figure stood at just 80 million. This year, it’s projected to be 700 million people. That’s up almost 900% in less than two decades, and more than double the entire United States population.

The second chart, below, shows that in 2010, just 5% of China’s population was considered middle class. This year, that figure is expected to stand at 48%, highlighting just how much wealth has been created in the country.

These are the people who are driving growth in China. The middle class is fueling consumption, online ordering and GDP growth in China. As the world’s second-largest economy and most populous country, China is set for steady and strong growth down a long runway.

Middle class as percentage of population
Middle class as percentage of population

Admittedly, COVID-19 will deal a setback to the Chinese economy. But it will do that across the world — it’s not as if China will be singled out amid this nasty outbreak. In time, though, China and the world will recover.

A Deeper Dive on Alibaba Stock

Because of the secular growth in China’s wealth, consumption plays are an obvious choice. It’s why we like JD.com so much too. But not only is Alibaba a much bigger play in commerce than JD, it’s also more diverse.

In 2019, 66% of Alibaba’s revenue came from China commerce revenue. That’s down notably from 79% in 2016, even though Alibaba saw a drastic increase in total China commerce revenue, (up more than 100% from 2017 to 2019). The reason that its share of revenue decreased, despite rising sales, is due to other growth segments making up a larger portion of the revenue pie.

For instance, cloud-computing revenue was up almost four-fold from 2017 to 2019, now making up Alibaba’s largest non-commerce revenue stream. Digital entertainment, it’s second-largest revenue generator ex-commerce, climbed 63% from 2017 to 2019.

The diversity is great, but the reality is Alibaba generates most of its revenue from commerce, for which it has a dominant position in China. Its Tmall platform represented more than 61% of total gross merchandise value (GMV) market share in Q4 2018. While shopping may take a hit in the short term, online shopping is a long-term secular growth story.

COVID-19 is bad for everyone, but at the end of the day, consumers still need to buy things. They aren’t leaving their house to do it, which leaves e-commerce — and Alibaba — there to answer the call.

Over the last four quarters, Alibaba has generated $24.7 billion in net income on $70.6 billion in sales. Profit of $9.48 per share values Alibaba stock at roughly 19.6 times earnings. That’s a pretty darn good price for a company with multiple secular growth drivers (cloud, commerce, etc.) in motion in a country with a booming middle class.

A reasonable valuation for unreasonably solid growth is simply too good to pass up. Alibaba stock is a buy on dips, especially as it continues to outperform the broader market amid the coronavirus outbreak.

Technical Indicators

Overall, the bias in prices is: Downwards.

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

The projected upper bound is: 203.38.

The projected lower bound is: 169.56.

The projected closing price is: 186.47.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 31 white candles and 19 black candles for a net of 12 white candles.

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 23.9272. 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 44.62. 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 sell 55 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 21. This is not a topping or bottoming area. The last signal was a sell 2 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 6 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed down -1.790 at 187.110. Volume was 38% below average (neutral) and Bollinger Bands were 5% wider than normal.

Open     High      Low     Close     Volume___
190.000 190.500 185.470 187.110 2,557,955
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bearish
Moving Averages: 10-period     50-period     200-period
Close: 188.39 203.45 188.45
Volatility: 54 55 40
Volume: 3,635,736 4,304,192 3,559,666

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 0.7% below its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of BABA.N at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 48 periods.

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