The probability of a mass delisting of Chinese stocks like Alibaba Group Holding (BABA), NetEase (NTES), Baidu (BIDU) from U.S. exchanges may have ticked lower. But the risk remains, adding to the fallout from Covid lockdowns in cities like Shanghai, and geopolitical concerns that could challenge Chinese stocks in the near-term.
Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to Earnings Estimates
For the current quarter, Alibaba is expected to post earnings of $1.31 per share, indicating a change of -17.1% from the year-ago quarter.
For the current fiscal year, the consensus earnings estimate of $8.38 points to a change of -15.7% from the prior year. Over the last 30 days, this estimate has changed +3%.
For the next fiscal year, the consensus earnings estimate of $8.70 indicates a change of +3.9% from what Alibaba is expected to report a year ago. Over the past month, the estimate has changed +0.8%.
Revenue Growth Forecast
Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial.
For Alibaba, the consensus sales estimate for the current quarter of $33.22 billion indicates a year-over-year change of +16.2%. For the current and next fiscal years, $133.26 billion and $151.49 billion estimates indicate +24.4% and +13.7% changes, respectively.
Last Reported Results and Surprise History
Alibaba reported revenues of $38.07 billion in the last reported quarter, representing a year-over-year change of +12.4%. EPS of $2.65 for the same period compares with $3.38 a year ago.
Over the last four quarters, Alibaba surpassed consensus EPS estimates two times. The company topped consensus revenue estimates just once over this period.
Valuation
Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects.
While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price.
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