One of China's most prolific growth stocks will be reporting fresh financials this week. A lot is riding on what Alibaba Group (BABA 0.59%) has to say when it announces its fiscal first-quarter results a couple of hours before the market opens on Thursday morning.
The e-commerce giant hasn't been an inspiring investment on this end of the pandemic. The shares were nearly cut in half in 2021, going on to shed another quarter of their value last year. The stock is trading higher this year, but with a year-to-date gain of less than 10% it's losing to the market for the third consecutive year.
A strong report can get Alibaba back on track. It could also get the Chinese bellwether back on the radar of growth investors.
Making it count
Expectations are healthy but not historically high heading into this week's critical update. Analysts see revenue and earnings per share rising 10% and 25%, respectively for the first quarter of fiscal 2024. After posting six consecutive quarters of single-digit year-over-year growth, it could be a long overdue return to double-digit top-line gains.
Alibaba posted at least 10 consecutive fiscal years of double-digit revenue increases before proving mortal in fiscal 2023. With China starting to gain traction after several false starts following the COVID-19 crisis, this could be the first whiff of Alibaba returning to form.
It's a different Alibaba these days. It restructured into six distinct business units in the springtime, but the initial pop on that news wasn't sustainable. There's always something going on with Alibaba. It could soon cash in on investor appetite for cloud computing stocks by spinning off its Alibaba Cloud subsidiary. Recently it's been jockeying to take its now profitable Freshippo grocery division public. It could be time to get excited about the parts and not just the sum of its parts.
Image source: Getty Images.
It's not just revenue starting to pick up the pace. The bottom line is recovering, and Alibaba is surprisingly cheap on an earnings multiple basis. Alibaba trades for less than 13 times trailing earnings and just 11 times this new fiscal year's profit target. As a company with a strong net cash position -- something you don't see very often with low P/E stocks -- its earnings multiple is even lower when you go by enterprise value instead of market cap. The value gets even better when you consider how Wall Street pros have consistently underestimated Alibaba's profitability.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q4 2022 | $1.09 | $1.18 | 8% |
| Q1 2023 | $1.44 | $1.62 | 13% |
| Q2 2023 | $1.73 | $1.92 | 11% |
| Q3 2023 | $2.36 | $2.79 | 18% |
| Q4 2023 | $1.32 | $1.50 | 14% |
Data source: Yahoo! Finance.
Alibaba heads into Thursday's financial report with strong momentum. It has rattled off four straight quarters with double-digit percentage beats on the bottom line. Even during its lull it's considered one of the market's top e-commerce stocks. It can start acting like a leader again if its fiscal first quarter suggests that Alibaba is a sprinter again.
Another beat may not be enough. Alibaba has routinely surpassed expectations over the past year, but the stock is basically where it was a year ago. Accelerating growth or exciting spinoff news could help. In the meantime, investors can take comfort in knowing that they're getting a classic growth stock in the world's most populous nation at a pretty compelling valuation.
