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Alibaba Group Holding Ltd (BABA) Trade Card™

Alibaba Group Holding Ltd (BABA)
187.1 -1.8 (-0.95%)
Sector:
Published by Capital Market Laboratories on 2020-04-04

What does this rating mean?
STOCK RETURNS
3Mo: -13.8%   |   6Mo: +9.8%  |   12Mo: +3.3%

TECHNICAL RATING
10DMA: $186.7  |  50DMA: $203.5  |  200DMA: $188.5
What does this rating mean?

Fundamentals     

➜ BABA generates $1.239 in revenue for every $1 in expense, which is extremely high and extraordinarily above the sector average of $0.00.

By early October, 2015, Alibaba stock has utterly collapsed to all-time lows shedding $140 billion in market cap. The weakness surrounded China's economic slowdown on one hand, and a very disturbing accusation of outright fraud on the other.

China's total stock market meltdown has hurt the consumer and consumer confidence. Combined with a slowing economy, the concerns fall squarely on Chinese consumers and their financial health.

But, incredibly, Alibaba has reported that revenue and earnings in the last year are both at all-time highs. That's right, all time highs in revenue and earnings in a stock down 50% (as of Oct 2015). Here's a chart of revenue (TTM) in the blue bars and net income (TTM) in the orange line.



Here's the Problem
There have been calls that Alibaba is an outright fraud. Here's a snippet from Fortune:



"Last week Fortune reported that certain respected investors had begun to doubt the accuracy of various figures reported by Alibaba, the leading Chinese e-commerce company. Hedge fund manager John Hempton of Bronte Capital even suggested that Alibaba might be committing fraud by 'faking their numbers.'" (Source: Fortune).



In response to those accusations, Alibaba's founder and executive Chairman Jack Ma retorted that China's community of online shoppers is massive and prolific in their purchasing power, and Alibaba's marketplace is their favorite place to shop. He simply said that the numbers look "to good to be true" because of China's market. Check out this image that shows the unimaginable growth in the size of China's middle class (evidence to support Jack Ma).



We're talking about estimates of nearly half a billion more people in China's middle class by 2020. That doesn't mean Alibaba isn't a fraud, but let's be honest here, the United States does have a palpable Sinophobia. The stock market has at least some reason for it, as there have been a large number of outright frauds in China that were trading on US markets.

Now What
Unlike other companies, Alibaba does not house its own inventory but instead acts as a platform for other retailers to reach BABA's immense customer base. This business model has proven to lead to absolutely enormous earnings margins. Further, BABA recently announced that it will be launching a sort of Netflix / HBO competitive product inside China.

If this fraud claim is simply wrong, then Alibaba is a remarkable investment opportunity with a stock price hammered by systematic risk (the Chinese market) and what could be totally unsubstantiated fraud accusations.

But, if Alibaba is a fraud at any meaningful level, the stock still holds a $150 billion market cap, so the fall from here could still be abruptly lower. The stock is down 50% from its highs and could easily drop another 50% from here, if not more.

We're left with a simple question: Is Alibaba a fraud? Whatever your answer to that is, will direct your investment thesis on the stock.

BABA's revenue (TTM) has risen for more than five consecutive quarters. One year ago the firm reported $345.28 billion in revenue. For the most recent year it reported $488.90 billion (a 41.6% one-year rise). Two-years ago the firm reported annual revenue of $226.91 billion (up 115.5%).

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Technicals   |   Support: 176.34   |   Resistance: 206.39   

Swing Death Cross Alert: The short-term 10 day MA is now below the 50 day MA.

BABA is hitting a technical breakdown right now. The stock has a one bull (lowest rated) technical rating because while it's trading above its 10-day moving average, it's down on e the day, trading below both the 50- and 200-day moving averages and the 10 day MA is below the 50 day MA ("swing death cross").


Earnings Estimates
Earnings Date
2018-01-23
EPS
$1.45
Revenue (Mean)
$
Revenue (Median)
$
Last Quarter (Actual)
$161.46 billion


Fundamentals Rating Summary


Metric Current 1yr Ago 2yr Ago Direction
Revenue (TTM US$ Millions)Trending Higher 488,895 345,278 226,913 Trending Higher

Operating Margin (QTR)Rising 1.24 1.20 1.45 Rising

Net Income (TTM US$ Millions)Trending Higher 163,381 63,496 64,623 Trending Higher

Cash from Operations (TTM US$ Millions)Trending Higher 150,975

Capital Expenditures (TTM US$ Millions)Trending Higher 49,643 -0 Trending Higher




Stock Returns and Chart


BABA is down -13.8% over the last three months and up +9.8% over the last six months. The stock price is up +3.3% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).

Note: You can change time horizons by clicking the or buttons near the bottom of the chart. You can examine a one minute day trading chart by clicking the at the top left corner of the chart.

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Now let's examine the visualizations of the critical financial measures.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Revenue (TTM US$ Millions) 488,895345,278226,913Trending Higher

Revenue (TTM) is trending higher meaning that it has increased for at least five consecutive quarters (we can see the trend in the chart below the analysis).

Note that BABA is growing revenue by 41.6% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating.

What do all these numbers mean?
BABA's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the up trend (consecutive quarters) in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.


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Enter Symbol



METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Operating Revenues/Operating Expense 1.241.201.45Rising

Operating Revenues/Operating Expense
Operating revenue over operating expense simply shows us how much revenue (in dollars) is generated for every dollar of expense. The ratio must be (at a minimum) above 1.0 in order for a company to turn an operating profit. For the latest quarter BABA showed a ratio of 1.24.

What do all these numbers mean?
A year ago Operating Revenues/Operating Expense was 1.20. In the last year we can see operating margins are increasing and are also currently greater than 1.0 (the critical level).

BABA's fundamental rating was affected from the operating margin numbers in two ways:
1. The current value is above 1.0 (the firm generates an operating profit).
2. The one-year change was positive (raises the rating).

Let's look at Operating Revenues/Operating Expense in the chart below with the total assets in the orange line.


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Net Income (TTM US$ Millions) 163,38163,49664,623Trending Higher

Net Income (after tax profit) over the trailing twelve months (TTM) for BABA is rising. For the most recent trailing-twelve-months (TTM) the company reported net income of $163,381 (million). That's an increase in the most recent year from $63,496 (million) or a 157.31% change.

Net Income (TTM) (aka annual earnings) is trending higher meaning that annual earnings have increased for at least five consecutive quarters.

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the rising bars from a year ago (four quarters ago).


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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Cash from Operations (TTM US$ Millions) 150,975

Cash from Operations (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For BABA the current value reported by the company is $150,975 million. The limited data gives us less information than for most companies to really understand the trends in the fundamentals.

For our next chart we plot Cash from Operations (TTM US$ Millions) in the blue bars through time.



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METRIC CURRENT 1YR AGO 2YR AGO DIRECTION
Capital Expenditures (TTM US$ Millions) 49,643-0Trending Higher

Capital Expenditures (TTM US$ Millions) is trending higher meaning that for at least five consecutive quarters, it's been rising. Several consecutive increases in capital expenditures may be a sign of solid investment in the future (if costs are under control). Note the trend in the chart below.

Capital Expenditures (TTM US$ Millions) in the most recent quarter for BABA was $49,643 million. CapEx is rising (-123,456.00%) from last year's value of $-0 million.

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars. Note the rising bars from one-year ago.


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