Alibaba, a tech-oriented company, stands out as one of the most affordable options available. Despite experiencing an 18% drop in 2023, the U.S.-listed shares of Alibaba trade at a mere eight times the projected earnings for its current fiscal year ending in March. Surprisingly, this puts the stock at a similar level as it was in 2014 when it had its initial public offering, even though it has seen a tenfold increase in revenue and a fivefold surge in earnings. Furthermore, Alibaba’s market capitalization is less than 15% of its closest American competitor, Amazon.com.
To add to its appeal, the company holds a substantial amount of cash, equivalent to one-third of its current market value of $184 billion. When considering its various business divisions, such as the core Chinese e-commerce unit, cloud computing and logistics businesses, and its stake in Ant Financial, estimates from analysts at China Merchants Securities in Hong Kong indicate that the sum amounts to around $130 per share – nearly double the current stock price.
Although Alibaba does come with some risks, such as the delay in the initial public offering of its cloud software business due to U.S. chip export restrictions, and mounting competitive pressures in China, these concerns are well-reflected in the stock’s valuation. Steve Galbraith, managing partner of Kindred Capital Advisors, suggests that even without spectacular success, maintaining the current status quo would be sufficient for Alibaba at its current price.
One potential driver for boosting Alibaba’s stock is the possibility of a larger dividend payout, which currently stands at 1%, or a significant stock buyback program. These initiatives could provide investors with the necessary confidence to recognize the true value hidden beneath Alibaba’s current market price.