BABA - Alibaba stock price analysis: the comeback could be epic
2024-07-10 03:30:00 ET
Alibaba (NYSE: BABA) stock price record of underperformance has continued this year. It has dropped by over 1.50% this year as the Nasdaq 100 and S&P 500 indices soared by double digits. The stock has also dropped by over 54% while the two indices have risen by over 80%.
Alibaba has become a big fallen angel, meaning that $10,000 invested in it in October 2020 would now be worth just $2,442.
Good and highly undervalued company
Alibaba’s share price has mostly diverged from its financial performance. Its annual revenue has jumped from over $71.9 billion in 2020 to more than $130 billion in 2023.
At the same time, its free cash flow rose to over $20 billion in 2024. This means that it is trading at a price-to-free cash flow of 9.15, making it one of the most undervalued technology companies.
Alibaba also trades at a forward P/E ratio of 12.80, which is lower than the sector median of 16. Its five-year average stood at 24 and is much lower than companies like PDD Holdings and JD.com. It is also a cheaper company than companies like MercadoLibre and Coupang.
Alibaba is working to turnaround its business and boost its stock. Earlier this year, it announced that it would slash an additional 20,000 workers on top of the 20k it slashed in 2022.
Alibaba hopes that these layoffs will help it reduce costs and increase its efficiency as it faces substantial competition. In Mainland China, its retail operations are competing with the likes of JD and PDD Holdings, the parent company of Pinduoduo.
The company has also focused on shareholder returns. Earlier this year, it announced that it would repurchase its stocks worth over $25 billion, which is a substantial figure.
Over the years, it has reduced its outstanding shares from over 2.71 billion in 2021 to 2.43 billion shares.
Share repurchases help to boost a company’s stock by increasing its earnings per share (EPS) and making the remaining shares more valuable.
Alibaba’s cloud challenges
Alibaba stock price has also struggled because of its struggles in the cloud computing business. The most recent financial results showed that its cloud intelligence division had over $3.5 billion in revenue, a 3% increase from the same period in 2023.
In contrast, its competitors like Alphabet, Microsoft, and Amazon continued to record double-digit growth rate. AWS still commands a 31% market share while Azure and Google Cloud have 25% and 11%. Alibaba Cloud has a 4% share.
Its biggest challenge is that it provides these cloud solutions in China, where it competes with the likes of Tencent Cloud, which has a 2% share. It has struggled to gain market share globally since many companies prefer services by companies like AWS and Azure.
Alibaba stock price forecast
Turning to the weekly chart, we see that the BABA stock price has remained in a tight range in the past few months. It has dropped below the 23.6% Fibonacci Retracement point and the 50-week and 100-week Exponential Moving Averages (EMA).
The stock has also formed a triangle pattern that is nearing its confluence level. In most cases, breakouts happen when an asset has moved to this confluence point.
The accumulation/distribution indicator has continued falling and has formed a bullish divergence pattern. Its volume has moved downwards.
Therefore, at this stage, there is a likelihood that the Alibaba stock price will soon have a bullish breakout as buyers target the crucial resistance point at $114.57, its 23.6% retracement point.
This rebound could happen ahead or after the company publishes its next financial results on August 2nd. It is also in line with the recent BABA stock forecast by Loop Capital .
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