Examining how Alibaba Group Holding Limited (NYSE:BABA) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Alibaba Group Holding is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its internet industry peers.
How Did BABA’s Recent Performance Stack Up Against Its Past?
BABA’s trailing twelve-month earnings (from 31 March 2018) of CN¥63.99b has jumped 46.50% compared to the previous year. Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 24.12%, indicating the rate at which BABA is growing has accelerated. What’s the driver of this growth? Let’s see whether it is merely owing to an industry uplift, or if Alibaba Group Holding has seen some company-specific growth.
The climb in earnings seems to be driven by a solid top-line increase outpacing its growth rate of expenses. Though this resulted in a margin contraction, it has made Alibaba Group Holding more profitable. Scanning growth from a sector-level, the US internet industry has been growing its average earnings by double-digit 30.91% over the past year, and 19.61% over the past five. This growth is a median of profitable companies of 25 Internet companies in US including Solium Capital, Dragon Victory International and Where Food Comes From. This suggests that whatever tailwind the industry is enjoying, Alibaba Group Holding is able to leverage this to its advantage.
In terms of returns from investment, Alibaba Group Holding has not invested its equity funds well, leading to a 14.07% return on equity (ROE), below the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 5.17% is below the US Internet industry of 7.27%, indicating Alibaba Group Holding’s are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Alibaba Group Holding’s debt level, has declined over the past 3 years from 14.40% to 13.92%.
What does this mean?
Alibaba Group Holding’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. While Alibaba Group Holding has a good historical track record with positive growth and profitability, there’s no certainty that this will extrapolate into the future. I recommend you continue to research Alibaba Group Holding to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BABA’s future growth? Take a look at our free research report of analyst consensus for BABA’s outlook.
- Financial Health: Are BABA’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.