BABA

Alibaba Stock Alert: Is This the Turnaround Investors Were Waiting For?

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Over the past year Alibaba (NYSE:BABA) stock lost one-third of its value but in recent weeks is running hot again. Shares are up 26% from their 52-week low.

Although the Chinese e-commerce giant remains over 60% below its all-time high hit back in 2021, is this the inflection point investors have been waiting for? There is good reason to believe it is. Let’s dig in to find out why.

Too Many Distractions

Alibaba took its eye off the ball. It tried to be all things to all people. Beyond just its e-commerce platform, the company founded by Chinese billionaire Jack Ma put its finger into numerous pies.

It operates a cloud computing business similar to Amazon (NASDAQ:AMZN) web Serivces. Alibaba Health is a digital health care and pharmaceutical company.

It developed an launched an intelligent personal assistant, AliGenie, similar to Alexa. Cainiao is Alibaba’s logistics arms. It also operates DAMO Academy, a research and development institute.

To say the least, Alibaba has a lot of balls to keep up in the air while juggling intense competition in online shopping.

And that was likely its biggest failing. By not focusing on its core business, Alibaba allowed competitors like PDD Holdings (NASDAQ:PDD) Temu and Pinduoduo to steal market share. JD.com (NASDAQ:JD) has also proved to be a more nimble competitor.

Focusing on What Is Important

Alibaba now has a new management team in place that is focused on fighting back to regain momentum and market share. It is placing renewed emphasis on its flagship Taobao and Tmall apps with greater attention being placed on Chinese consumers (Alibaba also operates several marketplaces in international markets). 

Part of that effort, according to chairman Joe Tsai, is a recently created capital management committee dedicated to divesting noncore assets, including several Alibaba’s physical retail businesses.

According to Tsai, as of February, the e-commerce giant has already “exited $1.7 billion in noncore investments.”

Management is also attempting to restore value to shareholders by increasing its stock buyback program by $25 billion.

Greenshoots Are Appearing

The results are beginning to gain traction. Although there remains a lot of work to accomplish yet, Alibaba is seeing growth where it counts.

Goldman Sachs analyst Ronald Keung says domestic parcel volumes jumped over 20% in April compared to a year ago and surged over 30% over China’s Labor Day holiday that began May 1. He says sales at both Taobao and Tmall were running far ahead of the national average.

It will not show up right away in Alibaba’s financials, but investors can expect to see more of it in the back half of 2024.

Wall Street is becoming more upbeat about China stocks in general and Alibaba in particular. UBS analysts lifted the largest stocks in the sector to “overweight” because the fundamentals and earnings of the businesses remain solid despite concerns over real estate and macroeconomic concerns in the country.

The stocks in the space also have a unique opportunity to capitalize on the government investing in those businesses to help stabilize the stock market.

Support From All Sides

Brendan Ahern, chief investment officer for the KraneShares investment management firm, says China’s stock market doesn’t have “circuit breakers” similar to U.S. markets that halt trading during excess volatility.

As a result, the government acts as a buyer of last resort. Recently the government has been buying up shares of mainland stocks, particularly megacap companies.

This is providing a floor of support to stocks like Alibaba, and likely helps account for the turnaround in its shares since mid-April. The stock is up almost 20% over the past month.

Improved fundamentals, a renewed focus on its core business, growing sales and government support suggest Alibaba stock is ready to move higher. While it has made strong gains in just a short amount of time, there is plenty of runway for future growth.

The stock trades at 15 times trailing earnings, just 10 times estimates and Wall Street sees BABA stock growing profits 10% annually for the next five years.

Alibaba is a discounted stock ready to rise. It’s the inflection point investors were waiting for.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

More From InvestorPlace

The post Alibaba Stock Alert: Is This the Turnaround Investors Were Waiting For? appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.