2024-02-15 04:31:20 ET
Summary
- Alibaba's stock has declined 77% from its peak, but its sales, earnings, and net cash pile have continued to rise.
- The stock now offers a 13% free cash flow yield and a 22% yield when measured against its enterprise value.
- Alibaba is uniquely cheap compared to its peers in the tech industry, after having been among the most expensive just three years ago.
- Management's significant buyback program should allow the stock to perform well even if growth continues to slow.
Alibaba Group Holding Limited ( BABA ) has suffered a staggering 77% decline from its bubble peak just over three years ago, even as the company's sales, earnings, and net cash pile have continued to rise, albeit more slowly than investors had expected. As a result, the stock now offers a 13% free cash flow yield, and this rises to 22% when compared against its enterprise value due to the company's impressive net cash position. While its free cash flow may paint a favourable picture of earnings due to high stock-based compensation, the company's valuations make it an enormous outlier in the global mega cap tech space. With $35bn in buybacks slated over the next three years, now equivalent to almost 20% of the stock's market cap and almost one-third of its enterprise value, BABA no longer needs any growth at all to deliver strong returns to shareholders....
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Alibaba: With A 22% FCF Yield, Growth Is No Longer Needed