Alibaba (BABA) soared 10% on Dec. 6 on news of a management shakeup and an overhaul of its ecommerce business, but the stock’s price action since then has been terrible. With BABA stock more than 50% off its high, it might look like it’s on sale now, but is Alibaba stock a buy now?
Maggie Wu will depart as chief financial officer in April. She’ll be replaced by Toby Xu, who currently holds the deputy CFO post. Alibaba also announced plans to restructure its ecommerce operations by forming two new digital commerce divisions, focused on international and domestic markets.
Investor reaction was tepid to the company’s Investor Days on Dec. 16-17. Soon after, BABA stock slumped nearly 4% on Dec. 22 after China’s IT regulator disciplined the company for not reporting an open-source security vulnerability to the government.
Alibaba Stock: Recent Earnings
Alibaba stock has been on a downtrend for more than a year, and selling picked up the pace after its Nov. 18 earnings report.
The company reported adjusted profit of $1.74 a share, down 34% from the year-ago period. Sales increased 36% to $31.1 billion. The results missed the Zacks consensus estimate for adjusted profit of $1.87 and revenue of $31.9 billion.
Cloud computing revenue rose 33%.
Alibaba said sales for its current fiscal year should rise between 20% and 23% from a year ago. Analysts expected growth of nearly 28%.
Just ahead of its earnings report, Alibaba’s Singles’ Day shopping extravaganza, along with JD.com (JD), netted total sales of $139 billion.
Alibaba’s gross merchandise volume totaled $84.5 billion, up 14% from the year-ago period.
In early August, the company reported a 22% rise in quarterly profit. Revenue increased 46% to $31.9 billion. Alibaba said it had 1.18 billion annual active customers during the 12 months that ended June 30, up 45 million from the previous quarter. It reported 939 million mobile active users, up 14 million. The company also increased its share buyback program by $5 billion to $15 billion.
Cloud computing revenue increased 29% to $2.49 billion.
The results came after a negative response to earnings results in May. Alibaba stock gapped down on May 13 after the company missed Q4 earnings expectations, but revenue growth accelerated for the fourth straight quarter, soaring 77% to $28.6 billion.
Sellers Hit BABA Stock
Prior to that, BABA stock spiked 9% in heavy volume on April 12 after China regulators fined the company $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend, but the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks in recent months.
In early November 2020, the $34.5 billion Ant Group IPO, the fintech arm of Alibaba, was suspended in Shanghai and Hong Kong. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com, among others.
Alibaba Stock Fundamental Analysis
It’s hard to find a company with a more impressive track record of growth than Alibaba. The company has a five-year annualized earnings growth rate of 27%.
Expectations were high for Alibaba’s Singles Day annual shopping event in November, China’s biggest shopping day. The company didn’t disappoint with sales of $84.5 billion, up from $74.1 billion in the year-ago period.
The company has been able to stay in growth mode despite a slowdown in its core e-commerce business.
Alibaba’s business in China looks a lot like Amazon’s in the U.S. Alibaba’s cloud-computing business is showing solid growth, just like Amazon’s booming web services business.
BABA Stock: Sluggish Ratings
Alibaba’s Composite Rating of 41 (on a scale of 1-99 with 99 being the best) has been hurt mainly by weak price performance in recent months.
But for a megacap stock, Alibaba continues to deliver impressive growth.
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For its current fiscal year 2022, Alibaba is expected to earn $8.23 a share, down 17% compared to 2021. But growth is expected to ramp up in 2023, up 17% to $9.60.
Alibaba Stock Technical Analysis
Alibaba’s relative strength line has been on a downtrend since the stock topped in October 2020.
A stock’s relative strength line, found in daily and weekly charts at Investors.com, compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba broke out over a trend line on Oct. 7 and cleared the 150 level, giving an aggressive entry. The trend line was drawn by connecting the stock’s recent highs, starting with its late-June high of 230.89.
BABA stock ran up to a high of 182 and then pulled back to its 50-day moving average. Support looked good for a while, but BABA crashed through its 50-day line on Nov. 18 amid a burst of institutional selling.
Buying a stock when institutional investors are selling is an easy way to lose money. Renewed signs of accumulation, or institutional buying, would help Alibaba’s case, but it’s not happening yet. Alibaba stock is not a buy now, but aggressive traders might opt to buy if BABA stock can get over its Dec. 7 intraday high of 129.45.
If the stock does start to rally, the stock’s 10-week moving average, currently around 141.50, is a potential resistance resistance level to watch.
Follow Ken Shreve on Twitter at @IBD_KShreve for more market insight and analysis right now.
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