Alibaba (BABA) has fallen rather sharply from its September highs of $320, retreating as much as 34%. But does that mean you shouldn’t touch the Chinese tech giant or could this be a stock to buy at temporarily depressed levels?
The recent sell-off experienced was triggered by the CCP’s last minute postponement of the Ant Group’s $37 billion IPO on both the Hong Kong and Shanghai stock exchanges. Alibaba used to own Ant Group when it was known as Ant Financial and Alipay, however after trimming down their investment they now retain a 33% ownership stake.
Alibaba has a five-year annualized earnings growth rate of 31% and a sales growth rate of 48%, it's hard to find a company with a more impressive track record of growth than Alibaba. At a glance a PE of 30 means it isn’t cheap, however with an impressive growth trajectory and a PEG ratio of 0,99 BABA justifies its high PE. For example, revenue grew an impressive 28% to $71.99 billion for the year ended 2020. While Chinese commerce makes up 64% of the company’s revenue, they are doing well to diversify as their cloud computing business has grown 60% year over year to $4.01 billion and is expected to go much further as the US cloud market is eight times as big as the Chinese market.
Alibaba also sees solid sales from its food delivery business, Ele.me which it recently merged with its lifestyle app Koubei. Their digital media and entertainment unit, which includes their videostreaming platform Youku, and music streaming service, Xiami is also seeing increasing sales growth up 9% YoY.
The bottom line is that Alibaba offers an investor both an innovative company in the e-commerce and burgeoning cloud computing space very much in its growth phases with an added focus on the growing Chinese economy. Currently the stock trades for R233, down from its November 2020 highs of R320 and definitely has room to run with our price target set at R330.
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