This Tech Stock Could Double

It’s not every day a company displays excellent growth with revenues rising year-over-year like clockwork – 450% over the last four years to be exact…

Yet shares of the stock at one point this year hit six-year lows. 

Why?

Because there is a fear that Chinese stocks listed in the U.S. are in danger of becoming delisted for not meeting auditing requirements.

We believe that these concerns are likely to fade and that certain Chinese ADRs have the opportunity to shoot the moon from here. 

This past weekend, China confirmed reports that it planned to update auditing and reporting requirements for Chinese companies listed in the U.S.

And the one we’ve got our eye on – Alibaba (BABA), who has long been considered one of the best run companies in the world, and a top investment choice of Berkshire Hathaway’s, Charlie Munger. 

But old man Munger’s blessing isn’t the only reason why we’re so bullish. 

Nor is it just because the company is the top Chinese stock searched by financial pros EVERY week for the past six months, with volumes increasing as shares dropped.

So what else is there?

10 Best Starter Stocks for Beginning Investors (Sponsored)

These 10 stocks will allow investors to build long-term wealth regardless of skill level. MarketBeat experts guide you through dividend, growth, tech, blue-chip stocks and more in this FREE report. Leave the strategies to us… and build that long-term wealth you’ve dreamed of.

Get the list now

Alibaba Group (BABA) Business

Based out of China, Alibaba provides technology infrastructure to merchants, brands, and retailers. Alibaba’s Ecosystem includes 1.28 billion global active consumers. 

The firm operates its business in four segments: Core Commerce, Cloud Computing, Digital Media, and Entertainment. 

Some of the most important brands BABA owns is AliExpress, Alibaba.com, Taobao Marketplace, Cainiao Network, Alibaba Pictures, Youku, Koubei, to name a few. 

Revenue Distribution of Alibaba in Q4 2021, by segment

As you can see from the chart above, BABA is a major player in e-commerce, consisting of about 70% of the company’s revenues. Some go as far to say BABA is the “Chinese Amazon.” 

Alibaba (BABA) Financials

BABA continues to find pockets to grow its business. The firm has seen its revenues increase every year from when it went public. In fact, revenues have increased by more than 450% in the last four years. 

One concern investors might have is that its gross margin has been declining for the last seven years. However, for some businesses, a declining gross margin is a price you have to pay for growth. 

Last year revenue grew by 44.6%. And its current fiscal year growth is estimated at 26.8%

Alibaba (BABA) Valuation

BABA is one of the cheapest stocks amongst Chinese stocks and international commerce plays. T

The firm’s P/E ratio is 29.9, which is significantly lower than JD.com (JD), MercadoLibre (MELI) 733, and Pinduoduo (PDD) 49. Non-Gap P/E comes in at a paltry 12.84x.

Furthermore, BABA is cheap relative to its 5-year average P/E. In fact, based on its 5-year average P/E, shares of the stock should be trading north of $135.

Now, if you focus on the Price-to-sales that’s when things get saucy. Based on the 3-year price to sales ratio, the stock price should be trading north of $313 per share.  

And you know what else?

Unlike most tech stocks, BABA makes money and isn’t sitting on a mountain of debt. In fact, BABA has a current ratio of 1.7X, which means its assets are 1.7 times larger than its short-term liabilities. A quick ratio of 1.43 proves the company has no short-term cash concerns. 

The firm has a debt to equity ratio of 0.17, which means for $0.17 of debt, it has $1 in equity. 

Our Opinion – 8/10

Charlie Munger is widely considered one of the greatest investors ever, alongside his business partner, Warren Buffett. 

They typically invest with the idea of holding forever. 

And while tech has gotten slaughtered in the Q1 of 2022, Munger holds about 602K shares of BABA stock, which he believes will be trading significantly higher over the coming years. 

And we believe he will be right on this.

You see, it seems like BABA shares are down because of political fears and the slight possibility that Chinese ADRs will be delisted from the U.S. Stock Market. 

In fact, the firm announced on March 22, that it was buying upwards of $25 billion worth of stock over the next two years. 

Given the most recent news, we believe these fears are unwarranted and that BABA is a buy at these levels.