Alibaba Stock Price Forecast July 2021 – Time to Buy BABA?
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Alibaba (BABA) went public in 2014 by listing on US markets. The company priced the IPO at $68 and is up sharply since then. However, the stock has been underperforming the markets over the last year. What’s the forecast for BABA stock and is it a good time to buy the stock in July?
With a market capitalization of $590 billion, Alibaba is the largest Chinese company listed on the US markets. The stock is down 9.3% over the last year and trades at a discount of almost 32% over its 52-week high prices. While the US stock markets are hovering near their all-time highs, BABA stock is sagging near its 52-week lows of $204.39.
Alibaba stock technical analysis
Alibaba stock is looking very bearish on the charts. The stock has faced a strong resistance at the 100-day SMA while the 50-day SMA has been a strong support. Last week, BABA stock fell below the 50-day SMA also which is a bearish technical indicator. Earlier this year, there was a “death cross” formation in Alibaba stock after its 50-day SMA fell below the 200-day SMA.
While the death cross is a lagging indicator and is preceded by a downwards price action, it confirms a technical downtrend for the medium to long term. Alibaba has a 14-day RSI (relative strength index) of 48.5 which indicates neither overbought nor oversold positions.
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Recent developments
Alibaba stock was in the news recently after the Financial Times reported that its co-founders Jack Ma and Joe Tsai have pledged shares with global banks. The news led to a sell-off in BABA stock but the company soon issued a clarification. It said that “The fact that Jack and Joe borrowed from financial institutions using their Alibaba stock as collateral has been widely reported.” It also said that “The loans have prudent loan-to-value ratios to provide substantial cushion against triggering a margin call.”
To be sure, it is very common for company founders to pledge their shares to raise cash. Tesla’s CEO Elon Musk, who is among the world’s richest people, frequently borrows against the company’s shares. Almost all of Musk’s wealth is tied to Tesla shares and the stake in his privately-held companies. Musk does not get a salary from Tesla but instead gets stock options subject to the company meeting pre-determined benchmarks.
Alibaba stock valuation
Alibaba stock trades at an NTM (next-12 months) PE multiple of 21.6x which is not far away from its all-time low of 19x. Since the stock went public the NTM PE multiple has averaged 28x. To put that in perspective, Amazon stock trades at an NTM PE multiple of 61x. Even Amazon stock’s valuation multiples are trading near record lows. While Alibaba’s earnings are expected to rise, the stock has been trading flat since it peaked in the third quarter of 2020
Analysts expect Alibaba’s revenues to rise 30% in the current fiscal year which would end in March 2021. Its revenues are expected to rise 21% in the next fiscal year. The company’s net income is expected to be flat this fiscal year as it agreed to pay a $2.8 billion fine to the Chinese government. However, its net income is expected to rise 25% in the next fiscal year.
Why Alibaba looks like a good stock to buy
Looking at the strong growth outlook and tepid valuations, Alibaba stock looks like a buy at these prices. The company’s e-commerce operations have been growing fast and now the cloud business has also turned positive on the EBITDA level. BABA stock could end up surprising on the upside on both the topline and bottomline this year.
Meanwhile, despite the positive outlook, Alibaba’s stock has sagged. The company was caught in a tussle with the Chinese authorities after its co-founder Jack Ma criticized the company’s powerful regulators. China also shelved the IPO of Ant Financial where BABA holds a third of the stake. The IPO would have helped Alibaba unlock its value.
BABA stock forecast
Most Wall Street analysts are bullish on Alibaba stock. It has an average target price of $301.60 which is a premium of 38.5% over current prices. Of the 26 analysts polled by TipRanks, 25 have rated BABA stock as a buy while one analyst has rated it as a hold. None of the analysts has a sell rating on Alibaba stock. However, in May, after Alibaba’s first-quarter earnings several brokerages lowered their target prices.
Overall, while there are genuine concerns over Alibaba’s regulatory woes, they seem more than priced in at current stock prices. After the massive fine, the company has put the overhang behind us. While China has expanded its ambit and is now going after several companies including the newly listed Didi, the regulatory probe no longer seems “Alibaba-focussed” as it was towards the end of 2020.
Why buy Alibaba stock now
BABA is a good way to play the Chinese e-commerce story. It is also a play on the cloud theme and fintech space given its stake in Ant Financial. While Alibaba stock has been under a pressure over regulatory concerns, it should rebound once investors start appreciating the massive overvaluation. Incidentally, last month BABA stock also featured among the top discussions on Reddit group WallStreetBets. While Reddit traders couldn’t pump Alibaba stock like some of the other names, it nonetheless looks a good long-term buy at these prices.
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