Pick#4: Not Amazon but Baba !

Our current performance

We are back with another pick following our goal to select each time a pick that has the protentional of double in price within 2-3 years. To recap in our portfolio performance, 2 of our last 3 picks are in the green zoon covering the hit from CALM. Following our guidance of full transparency below is our current portfolio stand in blue compared to major indexes. We are ahead of Russell, matching Dow, but below NASDAQ & S&P.

Why not Amazon, but Baba !

We were monitoring many stocks under the category of major e-commerce. Two under monitor Amazon and Chinese JD.com raised up after their financial reports. That indicate the recovery of the business. We preferred Baba over others for many reasons. The first, the large hit Alibaba “Baba” got compared to all others. Belive it or not, Alibaba currently trading below its first day of trade ! Down from above $300 to around $85 currently. From Google trends below, we can notice that the down phase was done and followed by collecting phase with expected raise phase to be followed. Baba currently at one of its lowest price through history and below Baba chart during history.

Below is a comparison of Baba with Amazon, JD.com and Baidu in the last 5 years. Alibaba is in dark blue.

The second reason to select Baba over Amazon is the expected forward PE ratio, below table is the Earning per Share (EPS) for both Baba & Amazon (USD). From below, it is easy to notice that 2022 was a bad year for all e-commerce giants after recovery of Covid-19 and the mistake done by all for high intensive investment for expansion which later found to be more that actually required. Amazon currently shutting down many giant stores and recovery is coming and that was clear from its last announced financial report. Baba expected to report early next week and we want to be ahead of the news. Also from below table, we can see that Baba has better profits than Amazon and even better growth year to year. Even the bad year 2022 was with slight profit to Baba compared to loss for Amazon.

	2018	2019	2020	2021	2022
Amazon	1.01	1.15	2.09	3.24	-0.27
Baba	4.6	5.37	7.41	9.12	3.9

From above table, there is no balance between Alibaba and Amazon. Alibaba generate always higher earning than Amazon in multiple of times. But currently Alibaba share price at $85 is below Amazon share price at $110.

Third reason is to be with higher growth economy and far from affects of increased interest rates in US as well as debt celling issues. Below is example prior to Covid period.

Below is the annual GDP growth for the last 5 years for both economy in percentage. As per data from 2023, it is expected for China economy to grow in 5% rate compared to 2% to US economy.

	2018	2019	2020	2021	2022
China	6.7	6	2.2	8.1	3
US	2.9	2.3	-2.8	6	2.1

Alibaba?

Alibaba Group Holding Limited (BABA) is a Chinese multinational conglomerate company specializing in e-commerce, retail, internet, and technology. It was founded in 1999 by Jack Ma. Since then, it has grown to become one of the world’s largest e-commerce companies, with operations in over 200 countries and regions. Alibaba Group has four main business segments: core commerce, cloud computing, digital media and entertainment, and innovation initiatives. The company’s stock has been publicly traded since 2014, and has been one of the most popular investments .

Alibaba set on high cash on hand more than $75 billions. Because of that when China announced antitrust penalty of $2.8 against Alibaba last month, that didn’t affect the share. At least, it has a good side that we know now the impact of the investigations against Alibaba, so, the fear is cleared. The cash in hand will give Alibaba the ability to invest in many new opportunities to expand profit. For examples, the company’s platforms such as Taobao and Tmall, connect millions of consumers with merchants and have become a fundamental part of the country’s infrastructure.

In the last Alibaba financial quarter report, the company reported a total revenue of $31.34 billion USD, an increase of 24% year-over-year. The company also reported a net income of $8.32 billion USD, an increase of 37% year-over-year. Actually last announced quarter was one of the best quarters in both revenues and net income proving the recovery of the company and ready for growth again.

For annual performance, again Alibaba provide expanding growth of revenues make it fit for future and a wonderful pick at current price. We feel 2022 was a bad year for all e-commerce giants which highly will not repeat either from Q4 2022 indicated above or Q1 2023 announced by Amazon.

As per Nasdaq, Alibaba had always beaten the estimated earning per share and the expected 2023 quarters will be higher than equivalent of 2022. Below is the chart from Nasdaq.

[Reference]

Conclusion:

Alibaba is one of the largest and fastest-growing e-commerce companies in the world, with a dominant market position in China. It is currently, available in a discounted price based on the financial fundamentals. The company has a strong track record of revenue and earnings growth, and has consistently beaten analysts’ expectations. Alibaba has a diversified business model, with operations in multiple segments including cloud computing, digital media, and innovation initiatives. Finally, Alibaba has a strong balance sheet with ample cash reserves and minimal debt, which gives the company the flexibility to invest in future growth opportunities. For investors looking for exposure to the Chinese e-commerce market, BABA stock is a strong option to consider. At end below is clear evidence of e-commerce trading which was doubled in few years and how people adapting online purchase more and more even prior to Covid.