Please ensure Javascript is enabled for purposes of website accessibility

Is Alibaba Stock a Buy?

By Anders Bylund - Sep 2, 2020 at 7:13AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese cloud computing and e-commerce goliath's stock has gained 64% in 52 weeks. Can these lofty share prices soar any higher?

Chinese e-commerce giant Alibaba Group (BABA 2.64%) is on a roll. The company is crushing Wall Street's expectations in the COVID-19 lockdown era, and share prices have soared 64% higher in the last 52 weeks. Is it too late to jump aboard Alibaba's skyrocketing bandwagon or is the stock still a buy?

Recent business trends

Alibaba's sales rose 30% year over year to $21.8 billion in August's first-quarter report. Earnings increased by 15% to $2.10 per share. The results breezed by Wall Street's consensus estimates, which had pointed to earnings near $1.98 per share on approximately $21.3 billion in top-line revenue.

On the earnings call, CEO Daniel Zhang noted that the COVID-19 pandemic accelerated Alibaba's business in many ways. Consumers are doing more shopping online and enterprises rely on cloud computing resources like the Alibaba Cloud platform to an unprecedented degree.

"The pandemic has fundamentally altered our macroeconomic environment and everyday life, but it has also introduced new opportunities," Zhang said. "Digital adoption and transformation is a prevailing trend in this changed landscape, and we are confident that we can create Alibaba's future by capitalizing on the opportunities in this challenging environment just as we did in 2003 during SARS, and in 2008 during the global financial crisis."

Two boxers touch gloves, one wearing American colors and the other decked out in Chinese regalia.

Image source: Getty Images.

Speed bumps in the road ahead

Alibaba is expanding its operations outside Chinese borders, including a deep interest in starting direct e-commerce operations in the United States. Political tension between Washington and Beijing is making that ambition difficult to pursue right now but investors should keep this expansionist agenda in mind for the long haul.

In the meantime, there's a real risk that the Trump administration might take action to obstruct Alibaba's business on American soil. According to a recent report in the Chinese newspaper Global Times, Chinese analysts worry that the U.S. government might block Alibaba's semiconductor development efforts and cloud computing services ahead of the election in November.

Investors should also keep an eye on Alibaba's competitors. Pinduoduo (PDD 4.99%) and JD.com (JD 2.60%) are challenging Alibaba's inventory-free business model with their hyper-efficient takes on more traditional online retail models. Alibaba is the largest company in this tight-knit trio but Pinduoduo is growing much faster and Alibaba can't match JD's shipping and logistics infrastructure.

A green charting arrow crashing upward through the ceiling.

Image source: Getty Images.

Yes, Alibaba is a buy today

The pandemic has boosted Alibaba's growth trajectory in both e-commerce sales and cloud computing services, and these businesses were winners long before the health crisis came along.

Buying Alibaba shares is a direct bet on the Chinese economy, in the long run, magnified through the lens of booming e-commerce and cloud computing operations. The stock is also fairly affordable, trading at just 30 times trailing earnings and 25 times forward estimates. That adds up to a solid buy. Some investors might prefer Pinduoduo or JD, but Alibaba offers the best balance between risk and long-term rewards, in my opinion.

Anders Bylund owns shares of Alibaba Group Holding Ltd. The Motley Fool owns shares of and recommends Alibaba Group Holding Ltd. and JD.com. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$94.87 (2.64%) $2.44
JD.com, Inc. Stock Quote
JD.com, Inc.
JD
$56.94 (2.60%) $1.44
Pinduoduo Stock Quote
Pinduoduo
PDD
$49.62 (4.99%) $2.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
390%
 
S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.