The rally in Alibaba Group Holding Ltd (NYSE:BABA) stock may be showing signs of cooling off but BABA stock's bull run isn't over yet.
Of late, the calls for a pullback in Chinese eCommerce giant Alibaba Group Holding Ltd (NYSE:BABA) stock have gained more vigor. This comes as no surprise as Alibaba stock has more than doubled since the beginning of the year, and we had highlighted in one of our recent coverage why a correction may be on the cards. However, it is still too early to say that the bull run of the Jack-Ma founded company's stock is losing steam. BABA stock had recently retreated after hitting a high of $180.87, just $20 shy of the $200 mark. Given the recent calls for a pullback, investors would be inquisitive whether Alibaba stock can breach the psychologically important $200 mark in the near future. We believe that even with more than 100% gains in 2017, Alibaba stock still has a massive upside from here. Let's take a closer look.
Technicals give a better sense of near-term outlook.
Just a few days back, Alibaba stock was trading at overbought levels which soon resulted in a near 2% downtick. The signals from the Alibaba stock technical chart don't look too bright and hint at a further weakness for Alibaba shares in the near-term. The Alibaba stock technical chart flashed a bearish Moving Average Convergence Divergence (MACD) crossover in the last trading session, which is indicative of the near-term downside risk in the stock. The MACD line cut the signal line from above to form a bearish MACD crossover, which implies that the downtrend could continue over the next few sessions. However, the downside from here could be limited as Alibaba shares enjoy a strong support at the 20-day Simple Moving Average (SMA) which presently stands at 173.58, just a little over 2% lower than its last close. BABA stock has bounced back multiple times this year after testing the 20-day SMA. Hence, investors should closely monitor this support level.
The technical setup may not be as favorable to Alibaba stock in the immediate near-term but there are jillions of growth drivers for Alibaba stock which make a case for it to breach the $200 mark soon. One of our fellow writers at Amigobulls had recently made a case for a $220 stock price for BABA stock. So, the $200 mark should not be that difficult for the stock. However, the recent geopolitical tensions related to North Korea have not done any good for the stock. Further, the recent downgrade of China's sovereign debt rating by S&P global citing China's economic and financial risks have hurt investor sentiment. Alibaba shares have been riding on the macroeconomic tailwinds till now. However, the outlook still remains stable for China according to S&P global. Investors should also make a note that Alibaba stock is not just a play on the Chinese economy. Investors might be overlooking the company's international operations growth.
All Alibaba stock bulls would be very pleased by the findings of this eMarketer report. This bodes well for the company's international operations. The Jack Ma founded company's international commerce retail business revenue grew 136% in the last quarter. This strong growth looks set to continue for the foreseeable future. Alibaba has committed billions of dollars in Southeast Asia which could substantially reduce the risks related to Chinese markets. The focus of Alibaba on other regions of Asia Pacific could reap big rewards for the company. The eMarketer research has a bright outlook for the entire Asia Pacific region as"eMarketer estimates that retail ecommerce sales across the region will reach $1.365 trillion by the end of this year, and total more than $3 trillion by 2021—with annual growth rates remaining in double digits during the forecast period." The majority of the growth apart from China and India is expected to come from South-east Asia, where the western competitors are yet to make their presence felt.
Alibaba already has a head start in this region with its investment in Indonesia's Tokopedia and Thailand's Lazada. Indonesia is another high growth market where eMarketer estimates digital buyers will more than double to 73.9 million by 2021. In Thailand, the Alibaba owned Lazada group is already a market leader. Further, eMarketer cites several reasons why Alibaba's expansion in Southeast Asia could be a big success. Some of the cited advantages by eMarketer are "First, they’re familiar with the unique challenges and needs of mobile-first shoppers through their experiences in China. They’re also familiar with some of the obstacles that come with expensive and difficult last-mile delivery in countries where infrastructure still trails that seen in more developed economies."
To sum up, Alibaba stock is not short of growth catalysts which will propel the stock past $200. However, the technical setup does suggest Alibaba stock may hit a small speed bump in near-term. The tensions surrounding North Korea also seem to be a big impediment to the rise of BABA stock to $200. Investors should consider Alibaba stock as a play on Asia Pacific rather a China play. Analysts are also extremely bullish on BABA stock with Cantor Fitzgerald and Citic Securities being the new additions to the BABA bull camp who also have $210 plus price targets. Having said this, it's only a matter of time before Alibaba stock breaches the $200 mark.
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