Down Almost 30% in 2021, is it Time to Buy The Dip in This E-Commerce Giant?

Down close to 30% this year, this is one of the world’s largest e-commerce companies in the world that operates through various segments, including Core Commerce, Cloud Computing, Digital Media and Entertainment, as well as…

Innovation Initiatives. Alibaba Group Holding Limited (BABA) also owns such well-known marketplaces as Tmall, Taobao, AliExpress, Alimama, and others.

Year-to-Date (YTD), shares of the Chinese commerce giant have tumbled 28.5%. BABA is underperforming its benchmark, the ProShares Online Retail ETF (ONLN), which has lost roughly 8.9% over the same period.  However, the company continues to demonstrate impressive growth, improving its key operating metrics.

In this article, I will be analyzing the company from a quantitative and qualitative point of view to determine whether it is a good “Buy The Dip” candidate at current levels.

Recent News

On October 28th, Vertical Group downgraded Alibaba from “Bullish” to “Mixed” amid resource challenges and political tensions that can affect recovery in e-commerce sales. In addition, Citi CEO Jane Fraser expressed concerns regarding China’s economy, as Chinese internet companies, including Alibaba, Weibo, and JD.com, dropped drastically on Friday.

Alibaba’s Quarterly Performance & Analysts’ Estimates  

Alibaba’s revenues for its fiscal first quarter, ended June 30th, 2021, grew 33.8% year-over-year to RMB205.74 billion, missing the Wall Street consensus by RMB2.93 billion. Revenue increased primarily due to 34% growth in its China commerce retail business and due to higher revenues in logistic and international commerce retail businesses.

Its Non-GAAP net income came in at RMB43.44 billion, up 10% from the prior-year period. As a result, BABA’s non-GAAP EPS increased 12% from its year-ago figure to RMB16.60, beating analysts’ expectations by RMB2.31.

Furthermore, we can also find other positive signs in its quarterly report, including a 14 million quarter-over-quarter increase of mobile MAUs in its retail marketplaces and a share repurchase program boost by $5 billion. However, the company’s revenue miss contributed to a post-earnings sell-off, pushing BABA’s shares as low as $138.43.

Currently, analysts have a mixed outlook regarding the company’s next-quarter figures. A $1.96 consensus EPS estimate for the second quarter of fiscal 2022 indicates about a 30% decrease compared to a year prior value of $2.78. Although, BABA’s sales should rise by around 37% YoY to $32.1 billion in Q2FY22.

Even considering the retreat in its share price, BABA’s valuation multiples remain stretched. For instance, the company trades with an FWD P/E of 17.73x and FWD EV/EBITDA of 14.14x, both of which are well above the sector’s median. Hence, a decrease in the bottom line along with rich valuations could create additional selling pressure on BABA’s stock. Moreover…

 

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