Alibaba stock had been on a sharp downtrend for nearly one year even as the former China leader continues to deliver strong earnings and sales growth. After soaring 12% last week, Alibaba stock jumped again early Monday, up more than 3%, but is BABA stock a buy now?
Sentiment was positive in China stocks Monday after China fined food delivery giant Meituan around $500 million for antitrust violations, much less than expected.
Increased regulatory scrutiny has weighed on Alibaba (BABA) and other Chinese stocks in recent months, but Alibaba stock soared Thursday after China called a meeting between Chinese diplomat Yang Jiechi and U.S. National Security Advisor Jake Sullivan "constructive."
Sentiment was also positive after President Joe Biden and China President Xi Jinping reportedly agreed to a virtual summit before the end of the year. Alibaba (BABA) is making a case for a bottom, but is Alibaba stock a buy now?
Alibaba Stock: Strong Growth
The company on Aug. 3 reported a 22% rise in quarterly profit. Revenue increased 46% to $31.9 billion. Alibaba said it had 1.18 billion annual active customers during the 12 months that ended June 30, up 45 million from the previous quarter. It reported 939 million mobile active users, up 14 million. The company also increased its share buyback program by $5 billion to $15 billion.
Cloud computing revenue increased 29% to $2.49 billion.
The results came after a negative response to earnings in May. Alibaba stock gapped down on May 13 after the company missed Q4 earnings expectations, but revenue growth accelerated for the fourth straight quarter, soaring 77% to $28.6 billion.
Prior to that, BABA stock spiked 9% in heavy volume on April 12 after China regulators fined the company $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend, but the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
Alibaba's Q3 earnings report in February revealed another quarter of strong bottom-line and top-line growth.
Adjusted earnings rose 30% to $3.38 a share. Revenue growth accelerated for the third straight quarter, jumping 46% to $33.9 billion. Revenue for the company's cloud computing business grew 50% year over year to $2.47 billion.
One day after its earnings report, Alibaba stock jumped 3.5% on Feb. 3 after the company's fintech arm, Ant Group, struck a deal with Chinese regulators to restructure and become a financial holding company. Ant Group operates a suite of financial products, including the widely used Alipay digital wallet in China.
Sellers Hit BABA Stock
Sellers knocked Alibaba stock lower on Nov. 3 after the $34.5 billion Ant Group IPO, the fintech arm of Alibaba, was suspended in Shanghai and Hong Kong. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company's inability to fulfill conditions amid changes in the regulatory environment.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com (JD), among others.
Alibaba Stock Fundamental Analysis
It's hard to find a company with a more impressive track record of growth than Alibaba. The company has a five-year annualized earnings growth rate of 29%.
Expectations were high for Alibaba's Singles Day annual shopping event in November, China's biggest shopping day. The company didn't disappoint as sales nearly doubled from the year-ago period to $74 billion.
The company has been able to stay in growth mode despite a slowdown in its core e-commerce business.
Alibaba's business in China looks a lot like Amazon's in the U.S. Alibaba's cloud-computing business is showing solid growth, just like Amazon's booming web services business.
Alibaba's Composite Rating of 45 (on a scale of 1-99 with 99 being the best) has been hurt by sluggish price performance in recent months.
But for a megacap stock, Alibaba continues to deliver impressive growth.
Annual return on equity of 21% help its top-notch SMR Rating (sales + margins + return on equity) of A from IBD Stock Checkup (on an A-to-E scale with A tops) The Stock Checkup tool quickly identifies group leaders based on a combination of fundamental and technical factors.
For its current fiscal year 2022, Alibaba is expected to earn $9.21 a share, down 7% compared to 2021. But growth is expected to ramp up in 2023, up 28% to $10.91.
Alibaba Stock Technical Analysis
A 36% pullback for Alibaba stock in the second half of 2018 shook out a lot of sellers in the stock and ultimately served to reset the base count.
After a heavy volume breakout for Alibaba stock in late November 2019, the coronavirus stock market crash brought sellers into the stock. But Alibaba, formerly a member of IBD's Long-Term Leaders portfolio, soared out of a 24-week consolidation in July.
Last year, Alibaba broke out of a flat base with a 268.10 buy point during the week ended Aug. 28. It rallied for a bit, then started to pull back with the broad market. A new flat base formed with a 299.10 buy point. But an early entry was seen when Alibaba stock gapped up on Sept. 30.
RS Line Swings Higher
Alibaba's relative strength line is starting to point upward after a long period of underperformance.
A stock's relative strength line, found in daily and weekly charts at Investors.com, compares the stock's daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba broke out over a trend line Thursday and cleared the 150 level, giving an aggressive entry. The trend line was drawn by connecting the stock's recent highs, starting with its late-June high of 230.89.
Alibaba gapped above its 50-day moving average early Monday, another buy signal. If the stock can hold gains and start trading sideways above its 50-day line, that could pave the way for another upside breakout.
The stock's 200-day moving average, currently around 250, is another potential resistance level to watch.