The stock chart does not look good for Alibaba (NYSE:BABA), whichever way you look at it. Year-to-date, shares are down by 10% already, zoom back 12 months, the stock has shed 39%. The 3-year chart? Down by a miserable 72%.
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But does that reflect a business in perpetual decline? Not necessarily, says Barclays analyst Jiong Shao. In fact, considering that in the last 12 months, BABA generated $27 billion in FCF, a few quick calculations, says Shao, show that its valuation is now “among the most compelling.”
“Our math assumes that all BABA’s subsidiaries are given zero value plus FCF already including all the losses from the subsidiaries,” the analyst explained. “If assigning some value for these subs and excluding sub losses, valuation would be much cheaper. We believe BABA screens as the cheapest major tech stock globally.”
The Chinese e-commerce giant has also been prioritizing its shareholders and has been buying back ~$1 billion in shares a month in recent times and will probably keep on doing so for a while. Furthermore, in November, the company announced its first annual dividends of $1 per share.
“There is no other company in our coverage universe that is doing more or even close compared to what BABA has been doing in terms of returning value to shareholders, besides perhaps Tencent,” notes Shao.
That said, it’s not all bliss in the BABA universe. Less than a year after announcing its intention to spin off its cloud division, the company made a U-turn on the plan, greatly disappointing investors. However, Shao says his latest checks suggest that an IPO of its smart logistics business and its Hema (higher-end offline grocery) business remains on course for the first half of this year. Investors are also concerned about frequent changes in management, with former group CEO and cloud CEO Daniel Zhang, and former Taobao Tmall CEO Trudy Dai (appointed only two years ago), departing. These departures add major worries regarding the lack of management in what can be considered two of the company’s most important segments.
All in all, Shao has reaffirmed an Overweight (i.e. Buy) rating for Alibaba shares, albeit with a lower price target of $109, down from $138. This implies a 57% growth projection for the coming year. (To watch Shao’s track record, click here)
Amongst Shao’s colleagues, while two prefer to currently sit this one out, all 17 other reviews are positive, making the consensus view here a Strong Buy. Going by the $119.85 average price target, a year from now, shares will be changing hands for ~73% premium. (See Alibaba stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
