Key Points
- Alibaba stock is trading at a massive discount, despite being the clear superior business per its fundamentals.
- Analysts see all the upside to be had in this stock, with earnings coming up right as a political summit takes place.
- Is this the bottom for the stock? Even if it is not, you can’t deny what a bargain it is today.
- 5 stocks we like better than Amazon.com
It is well known that the market holds a strong disapproval bias towards Chinese stocks. This occurrence presents an opportunity for investors similar to the approach of legendary investor, Sir John Templeton. While the market condemns Chinese stocks, individuals with courage later reap profits from these undervalued opportunities.
Today, there are businesses in China offering higher rates of return at lower valuations compared to American stocks. Renowned investor, Charlie Munger, has highlighted the immense upside potential of the Chinese economy.
Currently, the consumer discretionary stocks in China, specifically Alibaba Group NYSE: BABA and JD.com NASDAQ: JD, are showing promise as the Chinese consumer begins to awaken from a prolonged period of dormancy.
Quality at a discount
Chinese businesses are no longer synonymous with lower quality and reliability. In fact, the rates of return and margins in China surpass those of American counterparts. A comparison between Alibaba and Amazon.com can serve as a good starting point.
Amazon’s net income margin over the past twelve months stood at 3.6%, while Alibaba claimed a 9.4% margin during the same period, almost three times that of Amazon.
Despite these favorable fundamentals, the market’s apprehension towards overseas investment has overshadowed Alibaba’s potential. This is evident in the price action where Amazon has garnered significant attention, leaving Alibaba undervalued.
Despite offering a service similar to Amazon’s delivery network, Alibaba trades at 68.0% of its 52-week high, while Amazon.com is at 98.0% of its high.
A gap to close
Alibaba’s management seems discontent with current valuations, as evidenced by their extended share repurchase programs, with $16.3 billion remaining until March 2025.
Furthermore, Wall Street legend, Ray Dalio, has been accumulating shares in Alibaba, JD.com, and other Chinese equities, demonstrating confidence in the Chinese market.
Analysts have a bullish outlook on Alibaba, with a consensus target price of $137.0 a share, implying a net upside of 65.6% from current prices. With substantial share repurchases underway, these targets are expected to rise.
Considering China’s largest consumer company is trading at a significant discount, backed by analysts and prominent investors, its potential as a strong investment opportunity is evident. Additionally, political meetings advocating for a capitalist agenda could set the stage for an earnings beat.
