G 20 Summit May Help Alibaba's Rebound
Alibaba Group Holding Ltd.’s ( BABA ) stock has fallen nearly 30% from its June highs as stock market’s broad-based sell-off continues. The shares of the China-based e-commerce giant have been weighed down by rising trade war tensions between the U.S. and China.
Now with the G20 Summit just days ahead and a meeting with President Trump and President Xi scheduled, the season can be changed “winter to spring ” for Alibaba.
The company’s earnings and revenue estimates have been slashed over the past six months as the Chinese renminbi (RMB) has fallen sharply versus the U.S. dollar. But if the trade tension eases, the renminbi may begin to strengthen resulting in analysts boosting their earnings estimates.
The company reported blow out second-quarter earnings results, but still, earnings estimates for fiscal 2019 have dropped by 20% to $5.18 per share. Meanwhile, fiscal 2020 estimates have fallen 21.5% to $6.72 per share. The good news, earnings growth is expected to be robust at nearly 30% in 2020. Even better, analysts are forecasting earnings growth of 31.5% in 2021. It means that the stock is likely too cheap given its current earnings multiple of 22.5 times 2020 estimates.
If one averages the earnings growth in 2020 and 2021 to 30%, the stock is trading with a PEG ratio of 0.75. Should the stock trade with a PEG of 1, the PE ratio would rise to 30, and the stock would be worth $201 based on fiscal 2020 consensus earnings estimates. That would be an increase of nearly 33% from the current stock price.
The stocks PE ratio for the next 12 months is also historically low when compared to the past three years. Since 2016, the stock has traded with a valuation between 21 and 36. This too suggests that Alibaba’s stock is cheap.
The technical overview:
The stock is printing a rising wedge pattern on the daily chart. This is a bearish continuation pattern. A bearish breakout of the wedge may carry the price towards 130 bottoms. This ” bottom retest” can be used as a buying opportunity. 160 $ is the key resistance. Another buying opportunity would be a weekly closing above 160.
A near term sell opportunity is the potential bearish breakdown the wedge – estimated at 141 $ targeting 130 $.
Now with the G20 Summit just days ahead and a meeting with President Trump and President Xi scheduled, the season can be changed “winter to spring ” for Alibaba.
The company’s earnings and revenue estimates have been slashed over the past six months as the Chinese renminbi (RMB) has fallen sharply versus the U.S. dollar. But if the trade tension eases, the renminbi may begin to strengthen resulting in analysts boosting their earnings estimates.
The company reported blow out second-quarter earnings results, but still, earnings estimates for fiscal 2019 have dropped by 20% to $5.18 per share. Meanwhile, fiscal 2020 estimates have fallen 21.5% to $6.72 per share. The good news, earnings growth is expected to be robust at nearly 30% in 2020. Even better, analysts are forecasting earnings growth of 31.5% in 2021. It means that the stock is likely too cheap given its current earnings multiple of 22.5 times 2020 estimates.
If one averages the earnings growth in 2020 and 2021 to 30%, the stock is trading with a PEG ratio of 0.75. Should the stock trade with a PEG of 1, the PE ratio would rise to 30, and the stock would be worth $201 based on fiscal 2020 consensus earnings estimates. That would be an increase of nearly 33% from the current stock price.
The stocks PE ratio for the next 12 months is also historically low when compared to the past three years. Since 2016, the stock has traded with a valuation between 21 and 36. This too suggests that Alibaba’s stock is cheap.
The technical overview:
The stock is printing a rising wedge pattern on the daily chart. This is a bearish continuation pattern. A bearish breakout of the wedge may carry the price towards 130 bottoms. This ” bottom retest” can be used as a buying opportunity. 160 $ is the key resistance. Another buying opportunity would be a weekly closing above 160.
A near term sell opportunity is the potential bearish breakdown the wedge – estimated at 141 $ targeting 130 $.
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