Alibaba stock rallied sharply with Chinese indexes Tuesday. Sentiment was positive after China’s purchasing managers index data showed the services sector grew much more than expected in October.
Meantime, China’s parliament is meeting this week and more details are expected about recently announced stimulus measures. Alibaba stock was trading above 100 in premarket treading, up around 2%, but is BABA stock a buy now?
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China’s Shanghai Composite index rose 2.3% overnight. Hong Kong’s Hang Seng added 2.1%.
Alibaba (BABA) gapped up powerfully on Sept. 24 after China loosened lending standards to stimulate an economy that’s been slow to recover. Other measures included cutting interest rates, reducing the minimum down payments for mortgages, and encouraging banks to lend more money for investors to buy shares.
The news fueled a broad rally in several Chinese internet stocks like JD.com (JD), PDD (PDD), Baidu (BIDU) and Bilibili (BILI).
Alibaba stock broke out of downtrend during the week of Sept. 20 after the company announced a suite of new open-source artificial intelligence (AI) models as well as text-to-video AI technology.
BABA stock also gapped up in late August after Chinese regulators said the company has successfully completed a three-year regulatory “rectification process.” Alibaba was fined $2.6 billion in 2021 for monopolistic practices.
It hasn’t been the best of times for Alibaba stock in recent years amid waning fundamentals. Alibaba isn’t the growth engine it once was, but revenue growth should accelerate in coming quarters as China’s consumer continues a slow recovery.
In mid-August, Alibaba reported adjusted profit of $2.26 a share. Revenue growth accelerated from the prior quarter, rising 4% to $33.5 billion.
Sellers hit Alibaba stock hard on May 14 despite a slight revenue beat, although buyers pushed the stock well of lows by the close. Buyers were in control for the next three trading sessions, sending shares higher by more than 11%.
On an adjusted basis, Alibaba earned $1.40 a share, down 10% year over year. Revenue edged higher by 1% to $30.7 billion.
Alibaba also announced a two-part dividend. It includes an annual cash dividend of $1 per American depository share and a “one-time extraordinary cash dividend” of 66 cents per ADS. The total dividend will cost $4 billion, the company said.
BABA stock rallied sharply on Feb. 6 after the company reported fiscal Q3 revenue of $36.7 billion, up 2% from the year-ago quarter and slightly above the $36.16 billion consensus. But adjusted profit fell 4% to $2.67 a a share.
Investors also liked the fact that Alibaba added $25 billion to its share buyback program through March 2027.
Three months earlier, Alibaba stock plunged in mid-November despite reporting an 18% rise in quarterly profit and 6% increase in revenue.
BABA stock surged on Jan. 23 on reports that co-founder Jack Ma and business associate Joe Tsai have been buying shares of BABA stock in recent months.
According to an SEC filing, Tsai purchased $151 million in Alibaba stock in the fourth quarter via his Blue Pool Management family fund. Ma, meanwhile, bought $50 million worth of Alibaba stock. Ma stepped down as the company’s chairman in 2019 and remains a big shareholder.
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Alibaba came under selling pressure on Sept. 11 after outgoing CEO Daniel Zhang unexpectedly stepped down as head of the company’ cloud business.
The company said in June that Zhang was departing as chairman and CEO of the company to focus on Alibaba’s cloud intelligence unit. In May, Alibaba announced plans to spin off its cloud business as a separate, publicly traded company.
In December, the company said that CEO Eddie Wu would take over the company’s struggling e-commerce business.
Alibaba stock soared above its 200-day moving average in July 2023 after Chinese regulators fined Alibaba’s financial arm, Ant Group, just under $1 billion.
Chinese regulators halted Ant Group’s IPO in late 2020 for not meeting listing requirements. In April 2021, regulators hit Alibaba with $2.8 billion fine in an anti-monopoly probe. But after three years of regulatory scrutiny, optimism is building that Beijing is close to ending its crackdown on tech firms.
In March 2023, Alibaba announced plans to separate into six separate units.
The company said each business will have the ability raise outside funding and even pursue an IPO. According to report, the company would likely hold on to its cloud/artificial intelligence business and its giant e-commerce operations.
Sentiment was weak around Chinese stocks in October after the Biden administration announced new restrictions on China’s access to U.S. semiconductor technology. This included tighter rules on the sale of chip equipment to China as well as restrictions on the exports of some types of chips used in supercomputing and artificial intelligence.
Alibaba stock rallied sharply in late August 2023 on reports that Beijing and U.S. regulators were close to an audit-inspection deal.
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks for the past couple of years. Besides a strict regulatory environment, Chinese stocks have also been dealing with a slowing economy.
In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend. But the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
The company has a five-year annualized earnings growth rate of 3%, hurt by recent earnings declines.
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Alibaba’s Composite Rating of 76 (on a scale of 1-99 with 99 being the best) has improved quite a bit in recent weeks. Still, the rating is weighed down by soft fundamentals.
But annual return on equity of 16% helps give Alibaba a top-notch SMR Rating (sales + margins + return on equity) of A from IBD Stock Checkup (on an A-to-E scale with A tops).
The Stock Checkup tool quickly identifies group leaders based on a combination of fundamental and technical factors.
According to Zacks, Alibaba is expected to earn $8.39 a share in its current fiscal year 2025, down 3% compared to fiscal 2024. For fiscal 2026, earnings are expected to rise 12% to $9.38 a share.
Click here to the top-rated stocks in the group.
Alibaba’s relative strength line had been pointing upward again when the stock initially broke out on Sept. 19.
A stock’s relative strength line, found in daily and weekly charts at Investors.com, compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba’s Accumulation/Distribution Rating is very strong at B+. The rating is helped by higher-volume price gains in recent weeks. Higher-volume price declines will weigh on the rating.
Overhead supply was an issue with Alibaba stock, but not anymore after a powerful during the week of Sept 27. After such a strong move in recent weeks, BABA stock is making an initial stand at its 10-week moving average near 98. It’s a major support level to watch, and a bounce off the 10-week line with conviction would put Alibaba in an alternate buy zone.
Some might call Alibaba a turnaround story with revenue growth expected to ramp up in coming quarters. For the September-ended quarter, revenue is expected to climb 7% to $33.6 billion, with 7% to 9% top-line growth expected over the next three quarters.
Follow Ken Shreve on Twitter at @IBD_KShreve for more market insight and analysis right now.
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