Is Alibaba (BABA) Cheap Enough to Buy? - InvestingChannel

Is Alibaba (BABA) Cheap Enough to Buy?

Proprietary Data Insights

Financial Pros’ Top Chinese Stock Searches in the Last Month

#3PDDPinduoduo 51
#4NIONio 33
#ad Beyond Traditional Investments: Embrace Diversity

Is Alibaba (BABA) Cheap Enough to Buy?

China’s $17.8 trillion economy is second only to the U.S.’s $27.0 trillion.

However, finding investment opportunities there isn’t easy.

In recent years, the government has moved away from free markets, instead taking a heavy hand in control and regulation.

This collapsed their markets, with the KranShares China Internet ETF (KWEB) losing almost 75% of its value since 2021.

And that’s basically how much the once mighty Alibaba (BABA) has fallen, despite substantial revenue growth every year.

It’s the top China stock searched by financial pros, according to our TrackStar data.

They see it as an extreme value play, given the company trades at 7x cash and throws up revenue growth between 10%-20% most years.

But, given the unfriendly regulatory environment, is that enough to make Alibaba worthy of an investment?

Alibaba’s Business

Alibaba is kind of like Amazon for China.

Its two flagship platforms, Taobao and Tmall, each sell to retail customers. The difference is Taobao is C2C while Tmall is B2C.

This makes up 46.3% of the company’s revenues.

The rest is broken down as follows:

  • China Commerce Wholesale (1.6% of revenues) – B2B product sales
  • International Commerce (7.4% of revenues) – B2B and B2C to the international markets.
  • Cainiao Logistics (8.7% of revenues) – Provides technology-driven logistics services to ensure efficient delivery of goods sold on Alibaba’s e-commerce platforms.
  • Local Consumer Services (5.1% of revenues)– Includes platforms like, which offers food delivery services, and Koubei, which focuses on local services.
  • Cloud Computing (10.3% of revenues)– Alibaba Cloud offers a comprehensive suite of cloud services, including computing, storage, networking, database, analytics, and machine learning services.
  • Digital Media and Entertainment (1.6% of revenues) –  Alibaba’s content and entertainment services, including video streaming through Youku, music streaming, digital publishing, and other media-related ventures.
  • Others (19.0 % of revenues)– Focused on the future, this segment invests in research and development of new technologies and services. It explores areas such as artificial intelligence, Internet of Things (IoT), and other emerging technologies, aiming to drive innovation across Alibaba’s ecosystem and beyond.

We view Alibaba as one of the more trustworthy Chinese companies with a history of presenting reliable financial data.

However, it’s also directly in the crosshairs of its government, which has stopped the AntPay spinoff and continues to hammer the company over data sharing.



Source: Stock Analysis

Revenue growth slowed markedly in the last few quarters. Taoboao and Tmall sales were up 2% Year over Year for the quarter, but total sales were up just 5%.

Earnings fell 68% during the same period as the company performed mark-to-market on equity holdings and impairment on Sun Art’s assets and Youku’s goodwill.

That would explain why cash flow still increased YoY.

Speaking of which, Alibaba generates an insane amount of cash – over $25 billion annually.

The problem is that doesn’t get put back to shareholders.

Total cash and short-term investments sits at a whopping $86 billion while ‘long-term investments’ hit $60 billion.

Alibaba doesn’t pay dividends, but spends about $10 billion a year on share buybacks, which comes out to 5.35% yield.



Source: Seeking Alpha

Chinese stocks are incredibly cheap. JD.Com (JD) trades at 5x cash and 10x forward earnings.

Pinduoduo (PDD) trades at 13x cash while GigaCloud (GCT) trades at 12x cash.

That’s all fine and well, if those numbers are accurate. Yet, even if they are, it doesn’t mean anything if profits aren’t returned to shareholders.



Source: Seeking Alpha

Alibaba’s growth has slowed in the last few years. And its forward outlook at 4% is pretty low, especially compared to other Chinese companies.

Plus, its seen EPS and net income drop over the past few years. That’s largely because they stopped receiving about $10 billion a year in interest and investment income when the Chinese government put the kibosh on the Ant IPO.



Source: Seeking Alpha

Alibaba still maintains some of the best profitability amongst Chinese companies, save for Pinduoduo. 

However, its inconsistent results have led to a tepid return on equity, assets, and total capital.

Our Opinion 3/10

We can’t get behind a company with so much risk.

Sure, it’s profitable. But shareholders never get a dime of that.

China’s government has too much say in what the company can and cannot do.

Until that changes, there just isn’t any reason to own Alibaba much less any Chinese company.

Want to get content like this directly to your inbox? Then we urge you to sign up for our newsletter here

Related posts

Advisors in Focus- January 6, 2021

Gavin Maguire

Advisors in Focus- February 15, 2021

Gavin Maguire

Advisors in Focus- February 22, 2021

Gavin Maguire

Advisors in Focus- February 28, 2021

Gavin Maguire

Advisors in Focus- March 18, 2021

Gavin Maguire

Advisors in Focus- March 21, 2021

Gavin Maguire