Optimistic Analysts: Overly Impacted, Accumulate Before 3Q22 Result
Alibaba shares at current price is trading at 2017 price levels even though their revenue grew 5.5 times of that in 2017. Optimistic Analysts believe that Alibaba's current P/E for Fiscal 2022 (ending March 2022) at 15.9x is trading twice lower than the average P/E from 2017 to date at 31.3x.
Another more conservative method in valuing Alibaba shares to measure Alibaba’s P/E average before the pandemic (from Alibaba’s IPO to 2019) at 26.9x which is 68.5% higher than the P/E 2022.
As such, using the above valuation matrix above, Optimistic Analysts believe that the correction in Alibaba shares is over with a 68% upside potential target price of US$206.
In addition, they expect Alibaba’s revenue to grow 14% YoY in Q3, 2022 and 22% YoY for FY2022 with operating margin to stabilise (between 22.4-22.6%) over the next two years, as the group continues to dispose non-profitable business (i.e. Possibility to sell part of their media holdings Weibo Corp (HKEx: 9898, Nasdaq: WB)).
Pessimistic Analysts: But, The Street's Most Pessimistic Forecasts on Alibaba Have Been Right
Pessimistic analysts view that Alibaba average consensus price targets (PT) have often been "too optimistic" over the past three years. It seems that BABA stock has trended closer to its most pessimistic price targets (PT), notably since BABA stock's November 2020 peak. Moreover, Alibaba's PT has also been revised downwards consistently, as its fundamentals have gotten worse as China's economy continues to slow.
In addition, Alibaba's reducing margins and investments in lower margins businesses have contributed to their consistent deterioration and diluted margins over the last three years.
Amid macroeconomic impact from China's slowing growth coupled with the need for more aggressive investments to fend off competition and develop new long-term growth drivers, pessimistic analysts believe that Alibaba lack a near term catalyst and there aren't enough near-term catalysts to turn more positive over its medium-term outlook yet. They believe that there is still a period of digestion for Alibaba until its revenue estimates reach a bottom.
They think it could come nearer to the end of 2022, as certain macro headwinds could start to unwind. These include the supply chain disruption and regulatory clarity.
The most pessimistic PT for BABA stock is $140, representing a 14.5% implied upside.
But, if you take a meaningful discount to account for Alibaba stock headwinds, then it's at most fairly valued, if not overvalued.
Therefore, pessimistic analysts encourage investors to remain patient for more data points before jumping into Alibaba stock again.
Moreover, the growth stocks correction in the US market has presented a plethora of alternative opportunities to consider. So, they believe that there's no need to rush into Alibaba stock for now.
Source: Smartkarma/Seeking Alpha
(Disclaimer: the above is for informational purposes subject to errors and omissions, and does not constitute an offer to sell or a solicitation of an offer to purchase any financial instrument.)
All posts and charts are for educational and illustration purposes only
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