Alibaba Stock Analysis – is this the right price to invest?

Alibaba Stock Analysis (BABA)

I just have to have a Alibaba Stock Analysis out. After all, it’s the biggest IPO ever in history… well at least at the point of this writing. Of course, one day in future, another company will break Alibaba’s IPO record but for now, BABA is the largest IPO in history, raising $25 Billion. Yep… $25B! As usual, my goal is to keep my analysis simple and straightforward and this analysis, Alibaba Stock Analysis, will be no different.

Enjoy and remember to leave a comment or question. I am always happy to answer or hear from you.

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Alibaba Stock Analysis – Business Snapshot
Alibaba Stock Analysis - Business SnapshotAlibaba Stock Analysis – Business Snapshot

Essentially, Alibaba is a Chinese e-Commerce company…somewhat like a broker/middleman that connects overseas buyers with manufacturers from China. It started as a Business to Business company and has since expanded its services to even Business to Consumer. I think the business model is sound as it make good use of the internet which makes Alibaba very efficient company. Anyway, up to now, it’s all just gut feel. Let’s dive into Alibaba financials to get the real picture instead on relying on what we feel which is no use in the world of investing.


Alibaba Stock Analysis – Earnings Per Share

Firstly, let’s take a look at Alibaba financial and let’s start by putting it through our 1st filter which is on the Earnings per share.

Screen Shot 2016-04-16 at 3.46.46 AM
Alibaba Stock Analysis – Earnings Per Share

Alibaba was only listed in 2014 in the US and hence there is not enough data to plot a chart. So we just have to look at its earnings history from this table. $10 EPS in 2014. $9.70 in 2015. And TTM of $26.79. Not enough data in truth but looks good for now.


Alibaba Stock Analysis – Debt Equity Ratio

Alibaba Stock Analysis - Debt Equity Ratio
Tesla Stock Analysis – Debt Equity Ratio Chart

Decreasing D/E ratio! It’s a good sign. Moreover, at 0.25 it has passed my filter of 0.50.


Alibaba Stock Analysis – Return on Equity

Alibaba Stock Analysis - Return on Equity
Alibaba Stock Analysis – Return on Equity Chart

Alibaba ROE is impressive. 39% is certainly above our expectation and I have to say it’s so far so good for Alibaba.


Alibaba Stock Analysis – Operating Cash Flow

Alibaba Stock Analysis - Operating Cash FlowAlibaba Stock Analysis – Operating Cash Flow Chart

Good growing operating cash flow. A sign of a solid company. So far, Alibaba has passed all our filters with no trouble. The only thing I feel inadequate is that it’s not been around for 10 years… well at least not in the United States.


Alibaba Stock Analysis – Valuation

So while we can safely conclude Alibaba is a decent or perhaps a solid company to keep on our watch list, the next big question is… what’s a fair price?

Identifying a solid company is one step but know when to enter into position is something else. Our goal is to buy into any solid company that is undervalued by the market. So let’s digest this and my calculation below…

Alibaba Stock Analysis - Fair Valuation
Alibaba Stock Analysis – Fair Valuation

At the point of this writing, Alibaba is priced at $79 and yes, it’s below what I think is the fair valuation. Hence, it’s undervalued. However, this is a fast growing company and a lot lies on the growth rate. Any earnings that come below expectation will have dire effect on price. For me, it’s a Buy.  Remember, you ultimately are the captain of your own ship. Decide well.

Good luck!

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