Summary
Alibaba's stock shows mixed signals with a very bearish near-term outlook, uncertain intermediate and long-term prospects, and modest undervaluation based on fundamentals.
The daily technical analysis indicates a bearish trend with broken uptrend lines, stalling moving averages, and negative indicators like MACD and RSI.
Weekly and monthly analyses present a neutral to mixed outlook, with some bullish divergences but overall lack of strong upward momentum.
Despite weak technicals, Alibaba's EPS growth and low P/E ratio suggest it is modestly undervalued, justifying a hold rating.
Earnings
Alibaba released their latest earnings on November 15th and showed mixed results. They reported revenues of RMB 236.503 billion up modestly from the prior year period's RMB 224.790 billion. As for EPS, they reported a GAAP figure of RMB 2.27, up from RMB 1.35. The EPS of RMB 2.27 is equivalent to a diluted earnings per ADS of RMB 18.17. In terms of USD, they had revenues of $32.71 billion, missing expectations by $498.84 million and a GAAP EPS (per ADS) of $2.51, beating expectations by $0.95. As you can see in the chart above, while EPS growth has soared back to near five year highs, revenue growth continues to be very modest, showing that Alibaba's core business operations are not growing at an impressive rate. Other highlights in their earnings include the operating margin being unchanged YoY at 15% but the adjusted EBITDA margin did decline from 22% to 20%.
Valuation
The P/E and P/S ratios are at very low levels compared to the past five years. The P/E ratio is currently at 17.88 after being as high as 120 in late 2022. The P/S ratio is at 1.609 after being over 10 back in 2020. Comparing the P/E chart to the EPS growth chart above, I would say that Alibaba is undervalued. While EPS growth in back near five year highs, the P/E ratio is currently below levels seen during the previous times when EPS growth was this high. Therefore I believe the P/E ratio could expand as growth in earnings justifies a higher ratio. Comparing the P/S ratio to the revenue growth chart above, I believe the stock is overall fairly valued since the revenue growth is near five year lows while the P/S is also at five year lows. I believe the P/S at current levels correctly reflects the revenue situation for Alibaba. Overall, I would say that Alibaba is slightly undervalued as the P/E ratio does have some potential to expand from here. Seeking Alpha currently has a B- valuation rating for the stock, confirming my evaluation.
Conclusion
Overall, the technical analysis showed quite a mixed outlook with the near term being the weakest of the time frames. The near term analysis showed weak charts, MAs, and indicators reflecting that the near future could be rough for the stock. The intermediate and longer term saw a mix of bullish and bearish indications making those time frames more neutral but still uncertain. For the fundamentals, as discussed above, the stock is overall modestly undervalued as I believe current EPS growth justifies P/E multiple expansion. After considering the weak near term and uncertain longer term technicals along with the undervaluation, I believe Alibaba stock deserves a hold rating at this juncture.
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