To The Moon

Chinese stocks have been having a rough time lately, with share prices once again approaching the lows of the March crash, like $Alibaba(BABA)$ ./$Alibaba(09988)$

Looking at the faltering stock price, Chinese stock investors are heartbroken again.

This time, will Alibaba rise to break the pressure level or move sideways in the bottom?

I have six reasons to be fully bullish on Alibaba.

1. Promising Earnings

On Aug. 4, Alibaba announced its latest quarterly earnings report.

Revenue of 205.556 billion RMB, again exceeding Bloomberg analysts' consensus estimates.

The domestic economy suffered a huge blow in the second quarter because of the serious pandemic.

$Alibaba(BABA)$ e-commerce business saw a decline due to dysfunctional logistics. However, revenue in the second quarter declined by only 0.1% year-over-year. (better than expectations)

Pandemic has eased in the 3Q. Therefore, Alibaba won't suffer from the logistics problem this year.

According to the Bloomberg consensus estimates

Alibaba's revenue is expected to return to positive in the next quarter, with a year-over-year growth rate of 6.6%.

2. Extremely low valuation

In terms of P/S valuation, Alibaba's current valuation multiple is only 1.9x, lower than Amazon's 2.9x.

Alibaba and $Amazon.com(AMZN)$ are relatively similar in terms of revenue structure, although the business weighting is different.

In 2022, Amazon is not having a good time either, with revenue growth of only 7.2% in the second quarter of this year.

Considering that Alibaba's revenue growth rebounded in the third quarter, the valuation is not likely to go down further.

3. Favorable policy

Reviewing Alibaba's historical share price, it topped in November 2020. The event that triggered the share price decline was the suspension of Ant Financial Services.

With no more regulatory policy, and weak economy, the policy level won't bring us surprises in the short term.

The resumption of the issuance of license numbers in the gaming industry in April this year was seen as one of the policy easing.

All in all, another blow on Internet industry is not likely to happen. There is no doubt that the "policy fundamental" has bottomed out.

4. Cost control and improved profits

After the slowdown in revenue growth, major Internet companies are choosing to tightly control costs and improve profits to tide over the difficulties.

According to $Alibaba(BABA)$ financial report, in the first half of this year, the number of Alibaba employees decreased by 13,616, accounting for 5.3% of the number of employees at the end of 2021.

Staff reductions are just part of the cost-control effort, along with margin improvements of businesses, such as an improvement in Adjusted EBITA margin for Local Living Services from -47% to -29%.

In the second quarter, Alibaba's net margin reached 11.1%, a record high in the past 1 year.

5. Multiple institutions buy more Alibaba in 2Q

As 13F released recently, HHLR Advisors, Ltd., Greenwoods, Goldman Sachs and Canada Pension Fund Investment Corporation ("CPPIB") have all increased their positions in e-commerce companies among Chinese stocks, with Alibaba as the main target.

The only one institution that liquidates its position in Alibaba is Bridgewater. But some people said Bridgewater turned to buy $Alibaba(09988)$.

Alibaba has already applied to the Hong Kong Stock Exchange to change from a secondary listing to a dual listing, a move that is expected to be completed by the end of 2022.

If it goes ahead, it is expected that Alibaba's major trading volume will shift to Hong Kong stock market. Therefore, it is natural that institutions shift from ADRs to Hong Kong shares.

The top institutions added $Alibaba(BABA)$ indicates that Alibaba is regaining institutional favor. 

To learn more about institutions' 13F, you can click Top Institutions 13F | They All Added 1 Chinese Stock.

6. Favorabale technical movements

Alibaba's current HK share price is 88 HKD, not far from the low of 71 HKD.

On the Candlestick chart, $Alibaba(09988)$ has broken its downtrend line since October 2020 in the latest rally.

There is a extremely strong support level at 80 HKD.

The plunge in Chinese stocks back in March was frightening. So March's HK$71 is theoretically the lowest point this year.

If you look at it the technical analysis, Alibaba down space is limited in the current position.

Bottom Line

In the absence of major negative policies and earnings declines, Alibaba shares should not hit new lows.

Of course, if Alibaba one day hit a new low, then I'm afraid it's a more horrible situation than the March crash.

I bet $Alibaba(BABA)$ will not hit a new low, what's your opinion?