We were asked the question - "Will BTA buying Alibaba (BABA)"
To answer the question we did some basic analysis
Alibaba Stock rallied on Friday 4-29-2022 As Crackdown Fears Ease
Alibaba (BABA) held a gain of around 10% Friday afternoon on reports Beijing is ready to stimulate the economy further amid widespread Covid lockdowns. Alibaba stock has been hit hard by selling in recent weeks and could try to break out of its downtrend soon, but is BABA stock a buy right now?
The sentiment was also positive around Alibaba stock and other Chinese stocks like JD.com (JD), Pinduoduo (PDD) after Bloomberg reported that Beijing is in talks with the U.S. to allow regulators to conduct on-site audits of U.S.-listed Chinese firms.
Chinese stocks soared on March 16 after China vowed to ease regulatory crackdowns while supporting overseas stock listings and building stability in capital markets.
Sellers Hit BABA Stock in recent years
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks in recent months.
In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend, but the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
In early November 2020, the $34.5 billion Ant Group IPO, the fintech arm of Alibaba, was suspended in Shanghai and Hong Kong. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company's inability to fulfill conditions amid changes in the regulatory environment.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com, among others.
Alibaba Stock Fundamental Analysis
It's hard to find a company with a more impressive track record of growth than Alibaba. The company has a Three to Five-year annualized earnings growth rate of 25%. But,
BABA industry Group rating it one of the worst at 188 out of 197 groups (with the industry group rankings 1 is best and 197 is the worst)
EPS for the most recent Qtr. Dec. 31, 2021, came in at (negative) -22% and (negative) -34% for the Qtr. Before that on September 30, 2021
The last 3 Qtrs. Avg. EPS Growth rate is (negative) -11.2%
Analysis are expecting the current Qtrs., March 2022 which reports on 5-12-22 to come in at (negative) -32% and the next Qtr. June 2022 to come in at (negative) -25%
Annual Earnings Per Share in 2021 was $9.94
2022 the Annual Earnings Per Share is expected to be $7.42 down 25% (-25%) from 2021
2023 the EPS is expected to be $7.88 a slight increase from this year 2022
The current year 2022 analysis is expecting an annual (negative) -19% growth rate YoY and
Next yr. 2023 -7% Growth Rate YoY
BABA historical EPS Growth over 3-5- Years is moving sideways around 25%
The company is clearly losing its past growth power and having slowing growth now due to the Chinese regulations and the slowing China economy. Also, the Covid lockdown don’t help
Cash Per Share is 20% higher than Earning Per Share which is good
Sales are growing at BABA but it has slowed over the last 4 Qtrs. See below:
Qtr Ending March 31, 2021, +77%
Qtr Ending June 30, 2021, +46%
Qtr Ending September 30, 2021, +36%
Qtr Ending December 31, 2021, +13%
Notice the company still has growing sales but the rate of increase of that growth is slowing
Annual Projected Sales Growth is trending down
The company’s Profit Margins are holding relatively steady at 18.4% , the ROE is 20%
and the Debt is at an OK Level
Several Funds (Institutional Investors owning the Stock) are getting GOT OUT of the stock over the last Qtr. down (negative) -4%. Even more funds are getting out of the stock over the last few Qtrs. See below the number of funds that own the stock in each Qtr.:
June 2021 3170 funds
Sept. 2021 2614 funds
Dec. 2021 2263 funds
March 2021 2181 funds
Notice that the Number of funds who own the stock has steadily decreased each of the most recent Qtrs.
Finally the Initial Fundamentals BTA looks at as a basic fundamental checklist is 52%. 12 out of the 23 fundamental checkpoints we look at has a passing grade. This is lower than we like, we look for at least 70% or above
The Company stock price is DOWN 59% over the last 52 weeks (-59%)
The Company stock price is Down 69% from its high of $319.32 on 10/30/2020 (-69%). The stock closed at $97 yesterday 4/29/2022
The company’s Relative strength rating is Very Poor at 16 ( 99 is the best rating)
The Stock is in a technical downtrend for the last 2 years
BABA has fallen back into it range from 2015 through 2016 when the company was fairly new. This could be the area where the company finds some support
The last time the company broke above 104.57 back in March 2017 it went on a 100-dollar plus run over the year
The company is currently still in a technical downtrend on the weekly and Daily charts and all the momentum is still to the downside
Is BABA a buy for BTA
Fundamentally the company is doing to poorly right now for us to BUY. The company needs to show at least one Qtr. with positive earnings Growth (Earning Per Share)
The company is scheduled to report on 5-12-22 let see how it does. If the EPS comes in with negative growth again this Qtr. and miss on the analyst estimates the stock will likely trade down more and may still need some more time to repair fundamentally
The company needs to show improvement on the chart Structure as well and come out of its technical downtrend on the Daily and Weekly charts before any action is taken on the long side
Also it this present time the Overall Market is in a Correction so any new buys at this time could be very dangerous
The Technical Charts will show us when the time is right to buy and the Fundamentals will hopefully keep us out of a stocks that will have a Major Collapse in price because of some analysis earnings downgrade
ONE MAJOR CONCERN WITH ALL CHINA STOCKS IS THE POSSIBILITY THAT THEY WILL BE KICKED OFF OF THE U.S.A STOCK MARKET. IF THAT HAPPENS ALL IS LOST THE INVESTMENT IS ZERO.
ALSO THE U.S.A. AND CHINA RELATIONS ARE POOR AND ANY BAD NEWS CAN CAUSE ALL CHINA STOCKS TO FALL HARD
See charts below for a technical picture
Below is a Daily Chart with key Moving Averages 5,9,21,50 150 and 200 day MA's. Notice that the 5Day MA and the 9Day MA is turning up slightly and the 5Day MA is starting to cross above the 9Day MA. The one key negative is the stock traded up to the 50day MA and got rejected, it turned down off of the 50Day. Also another key negative is the 50Day MA is trending down
The Stock is stuck between a down trending 21Day MA and a down trending 50Day MA
All the Long Term MA's 150Day and 200Day is also trending Down.
The Stock is in a clear down trend
Click on Image to Expand
Below is a Daily Chart of Price Structure, Trendlines also Support and Resistance Levels. Notice that the Stock is stuck below several down trending trendlines.
Look at how the stock keeps finding resistance at the outside and internal down trending trendlines
The Stock needs to get above these trendlines and start to find support on them and move higher. The stock must get above the Horizontal resistance levels at the $108.03 level. If it gets above that level it will be Key because the stock will be above the $104.57 level from back in March 2017 when it broke out and went on over a 100 dollar run
Click on Image to Expand
Below is a Weekly Chart with key Moving Averages 30 Week SMA, 30 Week EMA and a 21 Week EMA. Notice that the Stock is trading below all the Key weekly moving Averages
The Stock is finding resistance and getting rejected each time it try to get above the declining 21Week EMA (Yellow MA) and 30 Week EMA (magenta Line)
The Stock need to get above these levels before we will think that the down trend is broken
Also the Relative Strength Line is still Red and below the Zero line at (negative) -13.29. We need to see the Relative Strength line get back above Zero
Also the On Balance Line (blue line) is stuck moving sideways it needs to break out upward and start trending up
Please notice the Horizontal resistance levels and downward trendlines
Click on Image to Expand
Below is a Monthly Chart with key Moving Averages 12 Month SMA, 18 Month SMA and 36 Month SMA. Notice that the Stock is below them all and all three Monthly MA's are trending down
Also notice that the faster MA's are crossing below the slower MA's
also the Stock is riding the Lower Band of the Monthly Price Channel as it continues to expand downward
Click on Image to Expand
In Summary we at BTA COULD NOT BUY ALIBABA (BABA) at this time.
When most of the above Fundamental and Technical issues are resolved we think Alibaba will be a great opportunity.
It has a huge upside if it can get back to it's past earnings power and technical chart structure