Is Alibaba Group Holding Limited (NYSE:BABA) a Buy?

Is Alibaba Group Holding Limited (NYSE:BABA) a Buy?

Is Alibaba Group Holding Limited (NYSE:BABA) a Buy?

With U.S.-China trade relations turning sour, it’s been a generally good idea to bail out of stocks with China exposure. But not all stocks are made the same, a case in point being Alibaba BABA.

Here are some solid reasons you should be buying this stock-

1. China’s leading ecommerce company has a solid track record. Between fiscal years 2016 to 2019 (ending March), revenue grew more than 254% while earnings grew around 138%. In the just reported quarter, revenue grew 21.7% while earnings before non-recurring items grew 63.0%. Moreover, it guided to a revenue increase of 33% in fiscal year 2020 to RMB 500 billion.

2. The leading Chinese ecommerce company by far has 58% share in the country as of June 2018 (Statista) with the second player JD.com JD remaining far behind at 16%. Since Alibaba primarily operates in China, i.e., its business activity is primarily in China, it has Chinese government support. The Chinese population is large and Chinese disposable income continues to increase, making it a good market for sellers.

3. Alibaba caters to practically every ecommerce need like food ordering, film and TV, and a ubiquitous mobile and online payments platform (Alipay). The company also has a huge cloud infrastructure business that is even more dominant in China than Amazon AMZN is in the U.S.

Alibaba’s relatively later start has not been a problem for the company because of the government’s protectionism, something that the company can expect to continue in the future. Since the Chinese market is far larger than the U.S. and Chinese competition in the space is even further behind than Microsoft MSFT and Alphabet GOOGL, Alibaba has a solid growth path waiting for it.  

4. Moody’s has a positive view of the company’s strengths. SVP Lina Choi says, “We expect that Alibaba’s strong revenue growth and robust operating cash flow generation will continue to support its investment needs, and a credit profile appropriate for its A1 ratings.”

5. The trade war, especially the last round of Trump tariffs has sent its shares crashing, so that they are now at quite an attractive valuation. As a result, the P/E based on forward 12 months earnings of 28.88X is well below the median value of 33.58 over the past year. It’s also better than the industry’s 38.37X.

6. Interestingly, Alibaba is reportedly considering a Hong Kong listing to raise $20 billion according to people with confidential knowledge of the matter. The company needs to maintain liquidity and increase investment in technology is all we are getting from the read. But considering the U.S. government’s strong stand with respect to Huawei and Hong Kong recently relaxing its listing requirements, Alibaba may be looking to raise funds that can help it pull out of the U.S.

Market watcher and former Trump chief adviser Steve Bannon’s recent comment in the South China Morning Post reads: “The next move we make is to cut off all the IPOs, unwind all the pension funds and insurance companies in the U.S. that provide capital to the Chinese Communist Party.” If this is true, it could be an opportunity to make some money.

Overall, the bias in prices is: Downwards.

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

By the way, prices are vulnerable to a correction towards 172.02.

The projected upper bound is: 164.31.

The projected lower bound is: 144.26.

The projected closing price is: 154.29.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 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 9.0997. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a buy 11 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 27.96. This is where it usually bottoms. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 4 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 -109.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a buy 8 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 sell 14 period(s) ago.

Rex Takasugi – TD Profile

ALIBABA GRP ADR closed down -0.190 at 154.810. Volume was 330% above average (trending) and Bollinger Bands were 127% wider than normal.

Open High Low Close Volume___
156.400 157.070 153.230 154.810 14,173,041

Technical Outlook
Short Term: Oversold
Intermediate Term: Bearish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 164.63 179.70 164.22
Volatility: 46 36 44
Volume: 5,935,696 3,486,493 4,106,378

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 5.7% 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 moderate flows of volume out of BABA.N (mildly bearish). Our trend forecasting oscillators are currently bearish on BABA.N and have had this outlook for the last 12 periods. Our momentum oscillator is currently indicating that BABA.N is currently in an oversold condition.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

You must be logged in to post comments :  
CONNECT WITH