BABA Stock Forecast: Alibaba Still Deserves A Price Target of $240

motek 1The BABA Stock Forecast 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:

  • Alibaba will do its earnings report on May 20. I do not think current market emotions will deliver my old 90-day price target of $240 by that date.
  • Lingering doubts about China’s honesty over its COVID-19 victory means most investors doubt there is an actual strong rebound in that country’s e-commerce industry.
  • This distrust is bad because 90% of Alibaba’s e-commerce revenue comes from China. Misplaced skepticism means BABA will trade sideways until May 20.
  • My view is that online sales are surging in China as it is in COVID-19 affected Europe and United States. Alibaba is the intermediary that connects China suppliers to B2C retailers.
  • Don’t lose hope.  Alibaba’s stock still deserves a one-year price target of $240. The global fear over COVID-19 further fortifies the importance of online shopping.

We should not be disappointed. My February hypothesis that Alibaba (BABA) deserved a 90-day price target of $240 is unlikely to come true by May 20. I believe that even if Alibaba beat the EPS and revenue estimates for FQ4, the stock will still likely linger between $195 and $230. The highly politicized allegation that China concealed the true scope of its COVID-19 problem is a big headwind for Alibaba’s stock. Most investors are afraid that Pres. Trump and his allies will keep this issue against China as his main re-election propaganda.

With the distraction from Trump’s noisy anti-China propagandists, BABA will have a hard time climbing back to its 52-week high of $231.14. Alibaba has a -7.36% year-to-date return. I say this an opportunity to buy more BABA at a more affordable buy-in window.

(Source: Seeking Alpha)

Trump’s anti-China stance is misleading investors. Bearish investors think that China’s alleged cover-up of the severity of its COVID-19 breakout is going to be a long-term headwind for e-commerce in that country. Yes, China accounts for 90% of Alibaba’s e-commerce revenue. However, I see no correlation between Trump’s rhetoric and China’s growing e-commerce industry. Chinese citizens are not going to stop making online purchases just because Trump believes China’s totalitarian leaders are not being candid over COVID-19 data.

(Source: Statista)

Buy BABA While It Remains Affordable

We should exploit the current cynicism over Alibaba. This e-commerce giant deserves a one-year price target of $240. The political grandstanding by Team Trump overshadows Alibaba’s core strengths. Alibaba still stands tall as the best long-term investment. China is the biggest e-commerce market in the world. Alibaba boasts a 55% share of China’s retail e-commerce. The retail e-commerce industry in China in 2019 was worth $1.9 trillion – 3x greater than what it was in the United States.

(Source: Statista)

Buy more BABA while it trades below $200 before the herd gets bullish again. Alibaba continues to be notably undervalued by investors. BABA touts better sales growth rates and business margins. Despite these advantages, Alibaba’s stock still gets much lower valuation ratios than American firms, Amazon (AMZN).

(Source: Seeking Alpha)

The huge disparity between BABA and AMZN’s valuation ratios is why TipRanks gives Alibaba an average 1-year price target of $258.11. Many Wall Street analysts share my takeaway that BABA is grossly undervalued whenever it trades below $200.

(Source: TipRanks)

COVID-19 Quarantines and No-Travel Policy Is Boosting Adoption of E-commerce

No thanks to stay-at-home rules, there is a big surge in e-commerce orders. A 50% growth in online sales in April and May is great for Alibaba. We all know Alibaba is usually the middleman that connects Chinese suppliers to the world’s top B2C e-commerce platforms like Amazon (AMZN) and eBay (EBAY).

Going forward, the post-COVID 19 new normal will still compel billions of people to shop more online. They buy things online because it is safer than shopping in traditional brick & mortar stores. The continuing lack of a universal vaccine and cure for COVID-19 will force people to remain vigilant even long after governments lift travel restrictions and quarantine measures. Buying goods and services via mobile phones and computers minimizes the risk of being infected by the SARS-CoV-2 virus that causes COVID-19.

Pandemics are terrible events but they also change the buying behavior of consumers. More people now rely on online retailers like Alibaba to supply them with life’s necessities and worldly pleasures. A greater number of online shopping customers will only boost the already impressive profitability ratios of Alibaba. BABA’s 35.21% net income margin is far more impressive than  AMZN’s 3.56%.

BABA Stock Forecast
(Source: Seeking Alpha)

Final Thoughts

You should buy more BABA shares because the ongoing pandemic increased the average spend of online shoppers. It also increased the total number of long-term online shoppers. People who cannot go out because of quarantines/lockdowns and travel restrictions are resorting to buying goods online. Even toilet paper is now being purchased through phones and laptops.

No thanks to COVID-19, Alibaba will maintain or even improve its already amazing 47.7% 5-year CAGR annual sales growth. No thanks to forcible adoption of online shopping by more people, Alibaba will maintain its over 60% 3-year CAGR in net income growth. High-growth in revenue and net income will eventually force Alibaba’s management to start paying dividends.

CAGR Alibaba presents the perfect growth-at-a-reasonable price opportunity. It is very advantageous for investors to buy a high-growth company like BABA while the stock is not yet trading at 100x forward P/E. Buy BABA now before it shoots up to above $210. Take note that Alibaba was consistently growing its TTM EPS and yet investors gave it a diminishing P/E valuation.

BABA Stock Forecast
(Source: MacroTrends)

The prognostic algorithm of I Know First also gives BABA stock a bullish one-year forecast score of 180.13. Heed the predictive wisdom of I Know First. It has a high 0.70 predictability score when it comes to forecasting the 12-month trend of BABA.

BABA Stock Forecast

Past Success with BABA Stock Forecast

BABA Stock Forecast

I Know First has been bullish on the BABA stock forecast in past predictions. The I Know First algorithm issued a bullish outlook on September 20, 2019. The algorithm successfully forecasted the movement of Alibaba’s stocks and rose by 17.62% after three months. See the chart below.

Here at I Know First, our AI-based algorithm has modeled and predicted assets price movement worldwide for short-term and long-term time horizons, ranging from 3 days to a year. Since 2011, we have been providing an Alibaba stock price prediction, as well as daily stocks under 5 dollars predictions, EUR/USD forecast for tomorrow, gold price forecast, and, in particular, Apple stock forecast. Today, we are producing daily forecasts for over 10,500 assets. These quant trading forecasts generated by our quant trading tool are used by institutional clients, as well as private investors and traders to identify the best investment opportunities in the market.

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Please note-for trading decisions use the most recent forecast