Will Alibaba (BABA) Eclipse Its All-time High?

  • BABA shares have doubled since the IPO 

  • Managing expectations with earnings continue to support the price of the stock

  • Hong Kong could cause a problem, but an upgrade on November 22 could mean higher highs in BABA

Alibaba Group Holding Limited (BABA), through its web of subsidiaries, provides online and mobile commerce in China and around the world. The company began operations in 1999, has its headquarters in Hangzhou, China, and is the brainchild of Jack Ma. With a net worth of over $40 billion, Jack Ma is the wealthiest person in China.

Ironically, the 55-year-old former teacher received ten rejections on applications to the Harvard Business School. The trade war between the US and China has weighed on the Chinese economy. Mr. Ma, a member of the Chinese Communist Party, said, “Trade War is the most stupid thing in this world” in November 2018. Jack Ma stepped down from his leadership position at BABA in September 2018. Today, Daniel Zang is the executive chairman of the company. Insiders hold approximately 48.5% of the company’s shares.

BABA shares have doubled since the IPO 

The IPO price of Alibaba shares was at $68.

(Source: Barchart)

As the chart highlights, BABA shares opened at $92.70 on the first day of trading but fell to under the initial offering price in September 2015 to a low at $57.20 per share. The low at $10.80 or 15.9% below the IPO price was a bottom in BABA shares, which rose to a peak at $211.70 in June 2018. At the high, the price more than doubled from the opening price in 2014 and was 3.7 times higher than the bottom in 2015.

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Managing expectations with earnings continue to support the price of the stock

Alibaba has done an excellent job when it comes to managing expectations during earnings periods. In Q4 2018, analysts expected BABA to earn $1.68 per share. The company reported $1.81, 13 cents above the consensus level. In each successive quarter, Alibaba has exceeded analyst expectations earning 29 cents more than the estimates in Q1 2019, 32 cents more in Q2, and beat by 35 cents in Q3 of this year.

The company trades at an above market price to earnings ratio of over 53 times earnings and pays no dividend. Still, it continues to outperform expectations which have been highly supportive of the share price. It has not hurt the shares that the US stock market has risen to record highs.

Hong Kong could cause a problem, but an upgrade on November 22 could mean higher highs in BABA

Alibaba is a Chinese company, but the ongoing trade war between the US and China has had little impact on the price of the shares. At the same time, rising tensions in Hong Kong did not impact the latest secondary issue of BABA stock that raised $11.2 billion last week.

The listing in Hong Kong was the largest in almost a decade and returned Alibaba to the exchange where it first listed shares in 2007. When the price of the shares dropped in Hong Kong, Jack Ma took the company private only to go public again via the 2014 US IPO.

On Friday, November 22, Macquarie initiated coverage of Alibaba as “outperform,” stating that the Chinese e-commerce company has one of the “strongest retention and user activation moats” in the industry.

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BABA shares were trading at $185.78 on November 22, and all signs are that the stock is heading higher and could post a new all-time high sooner rather than later.

BABA shares were trading at $189.99 per share on Monday afternoon, up $3.21 (+1.72%). Year-to-date, BABA has gained 38.61%, versus a 26.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More…

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