Alibaba Stock Price Prediction (NYSE: BABA): Trade War With U.S. Is Not Slowing Down Alibaba’s Impressive Revenue Growth

motek 1The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First

Summary:

  • Inspite of the noise from a President Trump-initiated trade war with China, Alibaba’s revenue growth story remains very robust.
  • Alibaba reported its June 2018 quarter results last week and it posted revenue of $12.229 billion – a 61% Y/Y growth Core e-commerce revenue also grew 61% Y/Y to $10.456 million.
  • This outstanding quarterly performance convinced me that Alibaba did not deserve the 3% dip in its stock price during the post-earnings trading.
  • A trade war between China and America is just a minor annoyance. More than 92% of Alibaba’s revenue is generated inside China.
  • I Know First has a very bullish one-year algorithmic forecast for BABA. Going long on this stock now is highly likely to prove profitable.

The Q2 2018 earnings report of Alibaba Group Holdings (BABA) outstanding numbers. The most recent quarter delivered RMB 80.920 billion or $12.229 billion. This is 61% Year-over-Year higher than Q2 2017’s RMB 50.184 billion. The ongoing trade war between America and China is obviously not affecting Alibaba. This should eventually help correct the negative reaction of investors worried about the ongoing trade war between American and China.

(Source: Alibaba)

The 644 million monthly mobile active users of Alibaba should assure investors that Alibaba’s core China business is now too big to be slowed down by a trade war with America. The products sold online via Alibaba are mostly made in China. Trump’s expanding increased import tariff rates will only compel Americans to pay more if  they purchase from Chinese firms like Alibaba/Aliexpress.

Small and large U.S. companies who import products from China will eventually make enough noise to make Trump moderate his trade war engagements against China.

Why Alibaba Will Continue To Prosper

Alibaba’s stock price initially dipped 3% post-earnings last week (it has since recovered). This goes to show that investors are worrying too much over something trifling to Alibaba’s future prosperity.  The Trump-initiated trade war with China is not a handicap for Alibaba. Around 92% of Alibaba’s revenue comes from China. Please study the chart below.

(Source: Alibaba)

International retail and wholesale e-commerce only contributed $930 to Alibaba’s latest quarterly sales. Furthermore, only a portion of that $930 million was sourced from America. Amazon (AMZN) owns the online commerce in America so Alibaba’s non-China revenue is likely sourced from other countries.

I opine American firms that manufacture and import their products from China are more likely to suffer from this trade war. Alibaba’s international exposure is too small to handicap its growth prospects. Further,  China’s economy is still growing – it posted GDP growth of 6.7% in 2017 and 6.8% in Q4 2017. Alibaba’s high double-digit growth in revenue will persist as long as China’s economy is stable/healthy.

Undervalued Compared To Amazon

Alibaba’s commerce business is majority Business-to-Business. It should be appreciated as a better model than Amazon’s Business-to-Consumer. I hope to see BABA Price/Earnings valuation receive the same treatment that investors are giving to Amazon.

Based on forward Price/Ratio valuation, BABA is undervalued compared to AMZN. BABA’s TTM P/E is only 30x. This is notably lower than AMZN’s 109x. Alibaba’s forward 1-year Price/Sales ratio will also go down from TTM 10.54x to 5.564x – making it nearer to Amazon’s P/S TTM ratio of 4.55.

The Price/Book valuation of Alibaba is also notably lower than Amazon’s, 7.54x vs 26.52x. Alibaba has essentially killed Amazon’s expansion opportunities inside China and Southeast Asia. Wal-Mart’s (WMT) recent purchase of FlipKart is also going to slow down Amazon’s future growth in India.

Under careful study, Alibaba really has the better chance to expand faster than Amazon. BABA therefore deserves a higher valuation than 30x Forward P/E and 7.54x P/B.

Conclusion

BABA can hit $200 within the next 12 months. This could happen earlier if BABA again delivers 40%++ Y/Y revenue growth for the next two quarters. If forward-looking investors starts appreciating the other growing segments of BABA, the stock close 2018 priced at $190 or higher. Alibaba’s cloud infrastructure and media entertainment segments are still money-losing. However, these two segments respectively achieved 93% and 46% Y/Y growth.

Bulls will rally around BABA once AlibabaCloud starts contributing $1 billion/quarter. Alibaba is now the fifth biggest cloud infrastucture service provider in the world.

Lastly, Trump’s combative stand against China will eventually soften once influential American firms starts lobbying. The combined resources and influence of the biggest U.S. companies can accelerate the emerging probable impeachment of President Donal Trump. The last thing Trump needs right now is to offend American firms who import hundreds of billions of dollars worth of products from China.

The very bullish market trend forecast from I Know First fortifies my buy rating for BABA. I Know First gives BABA a one-year market trend score of 447.1. Anything above 100 is already a strong buy signal. I Know First’s stock prediction algorith also has a high predictability score of 0.79. It means I Know First has a long history of correctly predicting the 1-year stock trend of Alibaba.

Please note-for trading decisions use the most recent forecast.

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I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplification explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

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