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Is Alibaba’s share price near its peak?

Alibaba’s share price has been steadily climbing upwards, thanks to plenty of good press around its Hong Kong listing and better-than-expected November earnings. Can it keep rising?

Alibaba [BABA] has been delivering a lot of good news for investors of late.

Its most recent set of earnings, delivered on 1 November, left analysts’ expectations in the dust. The company announced revenues of RMB119.107bn, a year-over-year rise of 40% – way ahead of the IBES and Refinitiv forecast of RMB116.8bn noted by Reuters. The good news sent Alibaba’s share price up 1.8% the day following the announcement.

Then its secondary listing on the Hong Kong Stock Exchange on 26 November provided another bump, sending the Chinese retailer’s share price up by 2.2% on the first day of trading.

 

 

 

 

Between 1 November and 17 December, Alibaba’s share price has risen by 18% settling at $208.18. Overall, it’s been a standout year for Alibaba so far, with the company’s share price having risen 52.3% in total. But can it keep rising?

 

A technical glitch

The company’s recent share price rally brought it to a level of technical resistance of $202, a price the stock hadn’t surpassed since June 2018, Mott Capital Management founder Michael Kramer wrote in Seeking Alpha last month.

At that stage, Kramer said, there were two possible outcomes. If the stock couldn’t break out beyond $202, the share price would drop back down to $188 – which would represent a 9.7% drop on 17 December’s closing price. However, Kramer posited that if it were to breach the $202 resistance level, the share price would skyrocket back up to its all-time high of $211 achieved in June 2018. Shares were trading at $208.18 as at Tuesday’s close.

“The shares appear to be peaking and may be poised to decline based on the technical chart and some bearish options betting,” Kramer noted, urging caution.

“The shares appear to be peaking and may be poised to decline based on the technical chart and some bearish options betting” - Mott Capital Management founder Michael Kramer

 

Flying high

Fortunately for Alibaba investors, by Wednesday 11 December Alibaba’s share price appeared to have chosen its path, hitting $204.64 by market close. Digging deeper into Alibaba’s earnings suggests the odds are stacked in investors’ favour.

Alongside an overall revenue jump, Alibaba revealed in its recent results that its cloud computing business had seen a revenue rise of 64% – evidence that its continued efforts to diversify its business beyond straight-up eCommerce are bearing fruit. The company is also making efforts to target consumers outside of China’s top-tier cities, attracting first-time online shoppers with its new app Taobao Tejia, which focuses on selling discounted items.

64%

Alibaba Cloud's business revenue rise

 

Herein lies one of Alibaba’s main advantages. Trade tensions have been bubbling between the China and the US since March 2018 and show no signs of being resolved any time soon. But with its focus on domestic customers, Alibaba has been able to somewhat insulate itself from the surrounding geopolitical anxiety.

On 12 November, Alibaba held its annual Singles Day sale, bringing in a record $38.4bn to far exceed the $30.7bn the event raised in 2018. The holiday, which originated in China and has gained some popularity in parts of Southeast Asia, has become the biggest shopping day globally.

$38.4billion

Valuation of sales from Alibaba's annual Singles Day sale

 

Going gaga for BABA

Analysts at Goldman Sachs are expecting great things to come for Alibaba shareholders, predicting that the stock’s price could rise by as much as 30% over the next year, Bloomberg reports.

The bank’s analysts see value in Alibaba’s robust senior management team and say the retailer is on track to capture as much as a third of China’s retail payments this year.

 

Market cap$564bn
PE ratio (TTM)59.53
EPS (TTM)3.50
Quarterly Revenue Growth (YoY)39.80%

Alibaba share price vitals, Yahoo Finance, 18 December 2019

 

The fact that the company’s Hong Kong listing also paves the way for mainland Chinese investors to buy shares is also likely to work in its favour. Goldman Sachs analysts say as much as $5bn could flow into the company over the next three years if Alibaba can take advantage of trading links with Shenzhen and Shanghai.

Other analysts share this optimism. Last week, Citi Group’s Alice Yap announced that the firm was holding a buy rating on the stock, with a share price target of HK$284. Such a price would represent a brand new all-time high for Alibaba – and may be worth holding on for.

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