BABA Stock Plunge: A Bargain or a Risk?
$Alibaba(BABA.US$
Alibaba recently announced its earnings and, surprisingly, its stock price fell again. Now, the stock is 75% lower than its highest ever price and even below its first trading price back in 2014. The company's market value stands at $203 billion. It has $33 billion in cash and owes $23 billion, making its total value about $193 billion. In the past year, Alibaba made $126 billion in sales, $19 billion in profit, and $27 billion in cash after all expenses. This means you can buy the stock for 11 times its profit and 7 times its cash earnings. In simpler terms, if you owned the entire company, you'd earn back your investment in just 7 years through its cash flow.
Alibaba recently announced its earnings and, surprisingly, its stock price fell again. Now, the stock is 75% lower than its highest ever price and even below its first trading price back in 2014. The company's market value stands at $203 billion. It has $33 billion in cash and owes $23 billion, making its total value about $193 billion. In the past year, Alibaba made $126 billion in sales, $19 billion in profit, and $27 billion in cash after all expenses. This means you can buy the stock for 11 times its profit and 7 times its cash earnings. In simpler terms, if you owned the entire company, you'd earn back your investment in just 7 years through its cash flow.
But there's more. Alibaba also has investments worth $79 billion. If you consider these, the company's value seems even lower - about $114 billion, which is just 4 times its cash earnings. This makes Alibaba's stock look really cheap. But why is this happening? The main reason is concerns about China's economy. Investors are scared about a possible economic downturn, and issues at Evergrande, a big property company, aren't helping. Plus, the Chinese government is being tough on large tech companies. Alibaba has been fined many times, and the government stopped the Ant Group IPO, in which Alibaba has a big stake. Another issue is that foreign investors don't actually get direct ownership in Alibaba. They own a part of a company in the Cayman Islands, which is connected to Alibaba's profits, but there's fear that the Chinese government might one day change this setup.
Alibaba's cloud business growth is also slow compared to American companies, and plans to make it independent are paused due to US restrictions on selling advanced technology to China. Even the changing value of the Chinese yuan against the US dollar is causing problems. However, Alibaba remains a strong and reliable business. Its revenue and adjusted profit increased by 9% and 19%, respectively, in the second quarter. Now, the company is also starting to give dividends.
While there are risks, the stock's low price and the company's efforts to increase shareholder value make it an interesting choice. Notably, famous investors like Charlie Munger and Michael Burry own Alibaba's stock. Overall, it might not take much for Alibaba's stock to see a significant rise.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
102319027 : I'm looking forward to your piece when it gets delisted
Soyamilkmilk : hi just to clarify about the part of BABA's investment, why is it deducted from the total valuation of the company? wouldn't that have already been priced into the equity already as it's part of BABA's asset
102319027 Soyamilkmilk: he doesn't know what he is talking about. most prob copying some YouTube guru wannabe
28282828 : Trying to understand this. what do you mean “The company's market value stands at $203 billion. It has $33 billion in cash and owes $23 billion, making its total value about $193 billion.”