- Alibaba is a stock with strong fundamentals, with tremendous upside based on EPS, ROE and ROI.
- China is one market Alibaba looks to for increased growth, particularly the growing Chinese middle class.
- Alibaba's market share, income and earnings growth make the company a strong buy.
Alibaba (NYSE:BABA) has always exhibited a consistent bullish trend. Yet many analysts still incorrectly argue that BABA is unique given that it has grown exponentially within a limited geography. But considering that Alibaba is based within a population three times larger than the U.S. and within the world’s most potent sphere for growth, limited isn’t the word I’d use.
Alibaba had an EPS growth rate of 125.40% and sales growth of 53.40% over the last five years. BABA has a Return on Equity (ROE) of 35.50% while its Return on Investment (ROI) is 7.20%.
Investors who owned this stock recently, especially those who purchased calls have beaten the market considerably with prudent moves. BABA has a solid base and infrastructure in place to continue to beat the market.
Growing Chinese Middle Class
If you’re looking to capitalize on China’s growing middle class (even death and taxes are jealous at its certainty), BABA gives you that play.
China’s middle class is set to explode as hundreds of millions will be joining the ever-more capitalistic country’s buyer-class. Over three hundred million are set to enter the Chinese middle class over the next decade and a half by even modest economists’ evaluations. This makes e-commerce growth in the area inevitable.
These same economists also note that the rise of China’s middle class will help lift consumption share in GDP to around 50% by 2030. This will benefit Alibaba’s movie and mobile divisions and China’s overall purchasing-class with further growth.
With a growing middle class comes more disposable income and consumer spending, for which Alibaba is better positioned than any firm in Asia, and the world. Certainty and efficiency are friends of any market, and the Asian market is no different.
A growing consumer base combined with Alibaba’s unique umbrella type structure of social media services gives the company an advantage over global peers. A retailer focusing on the U.S. would need to hire Amazon, Google, and Facebook to get the same selling, branding, and broadcasting services that Alibaba offer in a one-stop shop model.
Alibaba has a first mover’s advantage which has enabled the stock price to grow at a high rate. The eventuality of this high growth is that Alibaba has succeeded in claiming a majority stake in the Chinese eCommerce industry. The scale of Alibaba’s operations is impressive, as can be seen by just looking at the daily sales on a single day in China, where the total sales topped $14.3 billion on November 11, 2015. (Side-note: Alibaba essentially created and trademarked Single’s Day (Nov. 11th) in China to boost eCommerce sales.)
While its consumers increase in number, and with increased income, Alibaba only grows stronger. BABA will continue to be a strong part of any investor’s portfolio for the foreseeable future.
Currently trading at a price of 99.2 on the NYSE, Alibaba stock has a 12-month price target of 128, which beats the market considerably. Alibaba stock is currently a Buy.