Alibaba (BABA -1.62%) stock has started to show signs of recovering after falling to new lows last year. In the past month, share prices have jumped 19% and could be headed for more gains.
Bank of America analysts recently maintained a buy rating on the stock but lowered the price target from $102 to $99. However, that still implies an upside of 17% over the next 12 months over the current share price.
Why buy Alibaba stock
BofA analysts expect Alibaba's total revenue to be up 6% year over year in the March-ending fiscal 2024 fourth quarter, a slight acceleration from the 5% growth in Q3. Keep in mind, BofA's estimates are higher than the Wall Street consensus that projects the company will report a year-over-year boost of 4.3%.
Alibaba could be starting to see the early signs of a recovery. On the previous earnings call in February, management credited a more competitive pricing strategy for healthy gains in active buyers and order volume. It's had to fight back against increasing competition from PDD Holdings' Temu marketplace, which has used lower retail prices to win customers and deliver explosive revenue growth.
However, Alibaba is an enormously profitable business because it generates most of its revenue from service fees and sales commissions from Tmall and other retail marketplaces. Alibaba's deep pockets could ultimately give it an advantage in China's retail market.
Most analysts are giving it the benefit of the doubt. The consensus has Alibaba growing earnings at an annualized rate of 10% per year, which makes the stock's forward price-to-earnings ratio of 9.9 look like a steal.
If the shares rose another 17%, the forward P/E would still be a bargain, which increases the likelihood that the stock will hit BofA's price target soon enough, assuming the company continues to report growth in retail sales. Investors will get the next update on Alibaba's progress when it releases fiscal 2024 fourth-quarter results on Tuesday, May 14, before the market opens.
