Alibaba (NYSE:BABA), like many Chinese and technology stocks, came under pressure in 2018, partly due to concerns about the trade war. And in the past few weeks, the strengthening U.S. dollar and reports of a potential cooling of the Chinese economy have added to the uncertainty surrounding BABA stock. Amid all of this pressure, BABA stock has tumbled 20% in the past year.
However, since China’s move to a consumption-based economy is here to stay, long-term investors may want to consider investing in Alibaba stock, especially as the company’s earnings, due to be announced on Jan. 30, approach. I believe that the slowing down of the Chinese economy may become a blessing in disguise, as it may prevent a full recession and keep the growth of the country and its online retail sector at sustainable levels.
The Fundamentals of BABA Stock Are Robust
BABA has become a highly regarded global company, and Alibaba stock offers U.S. investors the chance to invest in the growing Chinese consumer and e-commerce markets.
As BABA gets ready to release its quarterly results at the end of the month, investors who are seeking capital appreciation should keep in mind the company’s dominant position in the Chinese e-commerce space and the rapid growth of its e-commerce business. Moreover, BABA’s gross margin is over 55%, and many analysts expect its revenue to continue growing at double-digit-percentage rates.
The fact that the company is not highly leveraged also contributes to my upbeat view of Alibaba’s management and balance sheet. Its current ratio, which measures BABA’s ability to pay its short-term debt, stands at a healthy 1.4.
Although the Chinese economy may slow in 2019 or 2020, China’s growing middle class will continue to drive increases in the country’s consumer spending. The sales of China’s online retail market, which is growing rapidly, are likely to expand particularly quickly.
BABA also has multiple equity stakes in growth companies in other industries such as Alibaba Cloud, its cloud computing arm; Ant Financial, the Chinese payments giant; and Ele.me, the local delivery company.
Alibaba owns 31% of Weibo (NASDAQ:WB), the Chinese microblogging company. Like Amazon (NASDAQ:AMZN), Alibaba is also paying considerable attention to developments in cloud computing and artificial intelligence, two areas that will contribute to its bottom line and help boost BABA stock in coming years.
BABA’s International Growth Is Just Beginning
Furthermore, BABA has investments in start-ups in South Asia and Southeast Asia. Among the start-ups in those regions in which BABA has stakes are Paytm, an Indian digital-payments provider, and Lazada, a Singapore-based e-commerce company that is growing in overseas markets.
Many European companies are still discovering new ways to enter the Chinese market, and BABA may enable them to connect with Chinese customers faster. BABA’s mobile payment network, Alipay, is looking to expand in Europe. Such international growth will not only help increase the company’s bottom line, but it will also enable BABA to diversify away from China, lowering the macro risk facing BABA stock.
So Is It Time to Invest in BABA Stock?
The answer depends on your investment style and horizon, i.e., whether you are a short-term trader or a long-term-growth investor. BABA stock is a compelling long-term investment. Yet, between now and Jan. 30, when BABA reports its earnings, the markets are likely to continue to be volatile, especially since many other tech heavyweights are expected to release their quarterly reports between now and then.
After the recent selloff of BABA stock, followed by the recovery in the markets over the past week, the technicals of Alibaba suggest that BABA stock could continue to be choppy. Investors who pay attention to moving averages and oscillators should note that the short-term technicals of Alibaba stock are moving toward a more neutral reading from the extreme oversold levels we have recently seen.
The volatility of Alibaba stock is high, giving it a wide trading range, so short-term traders should proceed with caution in the coming weeks. From a short-term-chart perspective, I am not willing to say that BABA stock has bottomed yet. However, the recent decline of the shares makes BABA stock even more attractive for long-term investors.
I also believe that most of the negative effects of the U.S.-China trade war have already been priced into Alibaba stock. If the two sides reach a deal that’s seen in a positive light this year, BABA stock is likely to rally. The past four trading sessions have given Wall Street a glimpse of how powerful BABA’s comeback could be: the stock rallied from a low of $129.83 on Jan. 3 to a high of $153.35 on Jan 9.
The Bottom Line on Alibaba Stock
Alibaba’s growth in e-commerce, cloud computing, and other investments throughout China and globally make it a disruptor and a strong, long-term investment. Long-term investors should view any further fall in the BABA stock price as an opportunity to buy the stock. However, traders with a short-term horizon should realize that BABA stock may not yet have formed a base and consequently may not yet be ready to bounce back fully from its recent lows.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
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