Is Trending Stock Alibaba Group Holding Limited (BABA) a buy it now?

Ali Baba (BABA) recently made it to Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.

Shares of this online retailer have returned -23.4% over the past month compared to the +8.3% change in the Zacks S&P 500 composite. The industry Zacks Internet – Commerce, which Alibaba belongs to, has gained 11.6% over this period. Now the key question is: where could the stock be heading in the near term?

While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing change in a company’s earnings projection. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.

Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.

For the current quarter, Alibaba is expected to post earnings of $1.56 per share, a change of -10.3% from the prior year quarter. The Zacks consensus estimate has remained unchanged for the past 30 days.

For the current year, the consensus earnings estimate of $7.11 indicates a change of -14.4% from the prior year. Over the past 30 days, this estimate has remained unchanged.

For the next fiscal year, the consensus earnings estimate of $8.18 indicates a change of +15% from what Alibaba is expected to report a year ago. Over the past month, the estimate has remained unchanged.

With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent consensus estimate change, along with three other factors related to earnings estimates, Alibaba is ranked Zacks Rank #3 (Hold).

The chart below shows the evolution of the company’s consensus 12-month EPS estimate:

12 month EPS

Expected revenue growth

Although earnings growth is arguably the most superior indicator of a company’s financial health, nothing as such happens if a company is unable to increase revenue. After all, it is almost impossible for a company to increase its profits for an extended period of time without increasing its revenue. It is therefore important to know the potential revenue growth of a business.

For Alibaba, the current quarter sales consensus estimate of $32.69 billion indicates a year-over-year change of +5%. For the current and future fiscal years, the estimates of $137.56 billion and $156.18 billion indicate variations of +3.2% and +13.5%, respectively.

Latest reported results and history of surprises

Alibaba posted revenue of $30.69 billion in the last quarter, representing a year-over-year change of -3.7%. EPS of $1.75 for the same period versus $2.57 a year ago.

Compared to the Zacks consensus estimate of $31.15 billion, reported revenue is a surprise -1.47%. Surprise EPS was +16.67%.

In the past four quarters, Alibaba has exceeded consensus EPS estimates three times. The company exceeded consensus revenue estimates only once during this period.

Evaluation

No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.

Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of ​​the reasonableness of its price.

As part of the Zacks Style Scores system, the Zacks Value Style Score (which assesses both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on.), which is useful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Alibaba is rated B on this front, indicating that it is trading at a discount to its peers. Click here to see values ​​for some of the rating metrics that led to this rating.

Conclusion

The facts discussed here and plenty of other information about Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Alibaba. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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