Alibaba Group Holding Ltd (BABA) Is Undervalued and Provides Great Investment Opportunity
Alibaba Group Holding Ltd (NYSE:BABA) shares managed to come back strongly after hitting a low of $57.2, which was 15.9% down from the IPO price of $68. It was tough to justify the dragging down of the stock to such a level in the first place but larger concerns in China took precedence. The company did not do anything so badly to warrant such a hammering. Investors appear to have totally ignored the true potential of it apart from its efficiency. One of the most interesting factors is that it still offers a low valuation. Significantly, the company’s stock is lower on nine parameters of the ten key metrics compared to the industry. That clearly indicates that the stock is going cheap and offers tremendous opportunities for investment.
Alibaba Group Holding Ltd (NYSE:BABA) is much like Amazon.com, Inc. (NASDAQ:AMZN) focusing beyond the B-2-B platform. Its financial numbers could even suggest the strength in the Chinese economy. For instance, analysts consider that if the company earns less revenue than they expected, it was an indication that the economy was not doing as expected. That meant there were concerns over the GDP numbers and the resultant spending by the consumers. One of the reasons the shares got hammered in the past was due to the slower economic growth in the country. However, it has a number of products that supports it currently and will also help its financial numbers in the future.
For instance, Alibaba Group Holding Ltd (NYSE:BABA) has launched AliPay following the footsteps of Apple Inc. (NASDAQ:AAPL)’s Apple Pay. Its focus is to provide payment transaction gateway on the lines of the iPhone maker and make whatever it can in the upcoming years even if they are forced to provide it free currently. Secondly, it has AliCloud, which is more or less similar to that of Amazon.com, Inc. (NASDAQ:AMZN)’s Amazon Web Services. The company is yet to announce the financial details of it. The American firm also kept key financial metrics under the wraps for a long time. Once it became public, investors’ sentiments towards the stock jumped manifold. A similar pattern in respect of the Chinese firm cannot be ruled out.
Supports Revenue Growth
There is no doubt that for Alibaba Group Holding Ltd (NYSE:BABA), Alibaba.com is the pillar and could be termed as a diamond whereas its other firm Taobao could be termed as the Golden rim. There are also other subsidiaries like AliSoft or AliExpress playing the supporting role. Their objective is clear, i.e. to fuel innovation within the group first. These segments provide supporting revenue growth to the holding firms so that it could explore in more areas of operations. Another feature is that it is no longer wants to be treated as a Chinese firm, and the company wants it to be treated more like any other global firms because of its wider operations.
Revenue Growth Phenomenal
For the year ended March 2013, Alibaba Group Holding Ltd (NYSE:BABA) reported a revenue of RMB 34.52 billion. In the following two years, revenue jumped 52.11% and 45.14% to RMB 52.5 billion and RMB 76.2 billion respectively. In short, revenue more than doubled in 2015 from the level recorded in 2013. Its three-year revenue growth is a phenomenal 56.1% whereas the industry witnessed 13.8% only in the same period. This is also one of nine positive factors for valuation. Similarly, its net income nearly tripled to RMB 24.26 billion in 2015 from RMB 8.53 billion in 2013. The profit growth in the average three-year period was 79.0%, which was more than double of industry average’s 36.6%. In the same way, its current assets also more than tripled to RMB 142.11 billion whereas its current liabilities jumped 65.33% only to RMB 39.67 billion in the year 2015.
Alibaba Group Holding Ltd (NYSE:BABA)’s price to earnings for the trailing twelve-month represented only 19.2 times relative to 31.6 times the industry enjoys. Similarly, its price to book is 6.0 times only versus 7.3 times of the industry average. The company’s operating margin and net margin for the TTM is 28.2% and 73.1% compared to the industry’s 8.3% and 5.4% respectively. Its return on assets and equity were also significantly higher than the industry. Its debt to equity is only 0.2 whereas the industry has 0.7. The only factor that is not in its favor is the price to sales for the TTM period which is 14.0 times compared to the industry’s 1.8 times. The metrics clearly favors that the stock has tremendous upside potential.
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