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Why Alibaba Stock Popped 5% Again Today

By Rich Smith – Jan 6, 2022 at 12:44PM

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This analyst thinks Alibaba stock could double.

What happened

Building on gains won through an endorsement by Charlie Munger yesterday, Chinese tech stock Alibaba Group (BABA 3.46%) continued to soar higher on Thursday.

As of 12:15 p.m. ET, Alibaba shares are up 4.7% -- and you can probably thank Benchmark Capital for that.

Red map of China with a rising green stock arrow superimposed.

Image source: Getty Images.

So what

Benchmark, you see, gave Alibaba a kind of backhanded compliment this morning. On the one hand, the banker cut its price target on Alibaba stock by $10, to $235 per share -- not good news. On the other hand, though, you may have noticed that Alibaba stock currently sells for barely $127 a share.  

Or, in other words: Benchmark thinks Alibaba stock could roughly double this year.

Now what

Now mind you, Benchmark didn't just cut its price target on a whim. According to the analyst, Q3 revenue at the Chinese tech giant could come in lower than expected because of "further softness in consumer demand," warns

The reason: "Macro headwinds and rising COVID resurgences in China could have put incremental pressure on" Alibaba's ability to grow gross merchandise sales volume (GMV).

If you're going to buy into the stock now on Benchmark's (and Munger's) say-so, therefore, you need to be aware of the potential that Alibaba could miss analyst revenue targets, which currently foresee quarterly sales of $39.9 billion in Q3. And yes, that could imply an earnings miss as well. Analysts forecast per-American depositary receipt profits of $2.71 -- already down 19% year over year -- and that number could come in lower than expected if sales volumes slump.

So that right there is two reasons Alibaba stock could take a hit when Q3 earnings come out at the end of this month. Nevertheless, if you can look past the volatility and focus on the fact that Alibaba stock is selling for a historically cheap 17.5 times earnings right now, there's still a good case to be made for Alibaba stock being ready to rebound in 2022.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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