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Alibaba: Be Greedy When Others Are Fearful

Cavenagh Research profile picture
Cavenagh Research


  • Alibaba has grown at a 5-year CAGR of more than 42%, but the company's stock is trading at a PE of about x17.
  • The stock is down about 70% from ATH and now trades at very attractive risk/reward levels.
  • Personally, I see more than 50% upside for BABA stock, as I calculate the company's fair value with a residual earnings model.

Alibaba headquarter

maybefalse/iStock Unreleased via Getty Images


I am very bullish on Alibaba (NYSE:BABA) stock. I strongly believe that the market has priced in too much negativity and pessimism as compared to reality and investors are well advised to follow

This article was written by

Cavenagh Research profile picture
Experience as an investment analyst for a major BB-Bank, as well as private equity consultant for MBB. Currently working towards the CFA charter, having completed I&II. Passion for risk-assets (Growth, Contrarian, Emerging Market) ex-colleague and close friend of Investor Express

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BIDU, BABA, JD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Not financial advice.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (49)

EliasMouawad profile picture
Nice article. The $133 price target is reasonable.
Be dumb when others are fearful
If you have seen videos of youtuber Serpentza, you'd know what the real estate situation in China is and you'd stay away from Chinese stocks the same way you'd stay away from the "elepant's foot" at the Chernobyl Nuclear Power Plant.
i believe the same argument was used with Luckin Coffee...
1. Evil
2. Evil
3. You will lose everything.
Buffet says he would rather pay a fair price for a great company.
BABA is like walking into the dollar store and being amazed at the great value. You get what you pay for.
Greenhorn Investor profile picture
@9013185412 I don't know if I'd call Alibaba a dollar store equivalent. While Alibaba does present risks, let's not forget Munger was influential in Buffet's change from looking for cigar butts to great companies.
@9013185412 a dollar store run by the mafia
GratefulGuy57 profile picture
Sword of Damocles hanging over this one, and most Chinese stocks. Definitely high risk to either high gain or high loss. Only suitable for day trading until many clouds lift.
BABA: be foolhardy when others are using common sense.
azbroker profile picture
Did a deep dive on this housing crisis in China, so cliff notes is: millions of people have bought homes, and are paying mortgages and ..."money is gone"...the builder is bankrupt, ppl are paying and there is no house to move into, turns out this was a feature of the corrupt ccp system, not a bug. Local govts were required to regulate, yet got lions share of the largess as they were the sellers of this overinflated land in the first instance. The middle class folks were screwed by their own governments colluding with fat cat developers. These poor bastards decided to organize, therefore are enemies of the state. They stopped paying (boycott mortgage) on July 1... Banks will begin to fail over next 90 days, the extra money in middle class boycotters pockets may be spent on Alibaba, but not enough to off set what is sure to be spicy dog days of august markets decline. Keep your powder dry, till the valuations get more interesting. On top of that there is talk of china shooting down an american politicians airplane if it enters Taiwan airspace... I think it is clear that is is going to get worse in China before it gets better. Will Xi start a war, or target his middle class as political vs economic protestors? I have cut 75% of my China exposure its got to get to 2 or 3 x normal earnings power before I am interested in a dance.
@azbroker , thanks for the "on the ground" report... I am an unprincipled scalper and will trade for $ either for an hour, a day, or a week, Best to you!
@azbroker very well researched comment thank you
@azbroker there’s always luster over Taiwan and saber rattling. But I agree with the assessment. They also caused a liquidity crunch in real estate for developers. High shipping costs has made importing from China make little sense for many industries. Zero covid policy has kept them in rolling mass lockdowns as the rest of the world is well on its way to endemic. Xi has gone after many corporations immediately after speeches to be more conscious of markets. USITC pursuing import injury cases throwing on tariffs in the hundreds of percents. I had three products over %300. They attempt to transload out of SE Asia but the tariffs are retro active and will still be upheld if a buyer doesn’t do due diligence. Xi is quickly destroying the progress of his predecessors.
"(R)egulatory risk?" The whole playing field is determined by the Chinese government with little or no regard to the rule of law. You cannot say how this company will do regardless of its earnings and holdings today. Want to take a wild fling and hope the Chinese will do the "right thing?" Sure. But don't kid yourself. Really, you and I have no idea how this will come out, it is a stab in the dark.
Now reading subsequent comments I see I am in agreement with the crowd: now that is worrying.
magichr profile picture
@elba we know the outcome they already trying to go on another exchange. I told u all to get out. U guys Ben saying to buy when others are fearful since 300. Just stop it’s getting cringe now. Most of u are trapped bag holders that were to harder to listen to rest of us
Extra, Extra, news just coming in - Nancy has decided to visit Taiwan. Good for her and for the US of A. Now let’s see what that does to the author’s favorite stock, I’ll sit back and enjoy the show…
01 Aug. 2022
Any mention of the thought that maybe we shouldn't be investing our money in China?
@JackA1 Would you say that is for moral reasons or pocketbook reasons?
I would say plenty have been greedy with this pick and got burned. Too much geopolitical and regulatory risk.
I'm so sick of people misusing and abusing the quote from Warren Buffett! There is no way in hell Warren Buffett would buy Alibaba or any other trash garbage stock like this!
@GmanIV he bought BYD a big Chinese car company 10+ years ago, so why would he invest in China for that but not other Chinese companies?
Sean Livingstone profile picture
@GmanIV you could check their 13F submissions. Hedge funds usually bought earlier and at higher prices cos they generate huge demand, and then use options to cover their price drop.
@ajmacknz BYD👍👍👍
I was greedy when others were fearful of china stocks. Till now greedy of mine was destroyed by Mr. Xi jing bin's continuous bulldozer attacks of zero covid policy, private education ban, tech crack down and wolf warrior neighbour policies. Xi jing bin who is New mao ze dong will take the china economy back to fifty years back.
munhoi profile picture
chances of a massive aug/sept China reversal up tech rally appears to be high going forwards IMHO
@munhoi Cld be , cld not be, that is the question, Horatio
munhoi profile picture
@MagicQuotes.com once Pelosi mess is out of the way, her visit is just a temporary volatility hitting IMHO
@munhoi, what specifically is going to drive the reversal in Aug/Sept for China.
It appears the property situation in China is an absolute mess with property owners / investors losing billions.
Looking at Baba, it is only generating an ROE of 5.7%. For every 100 dollars/yuan invested in this company, management is only generating a return of $5.70.
Imagine I said give me $100 and I will return you $105.70 in 12 months? You would not be pleased.
Management is doing a terrible job generating returns for its shareholders and investors.
To the Thread: Tracking

1.Down from $302 end of Nov 2020 to $88.87 as of Aug 2022 in 21 month
2. Long term holders need to 344% to get back to Even to $302.
3. The most dangerous place in the world is your own mind, if you are a long term investor. Note Cathy Woods, who has destroyed her clients accounts
4. Risk management for anything is essential. When you cross the street as you ambulate in your own town, you look both ways, always! (this post's writer should be congratulated on his energy, his quotable phrases "there is no safe investment". )
While I welcome the numbers generated, the point made is that this company monetizes- that is, it makes money, unlike many companies/ It employs over 250k people vs Goog as a comparison to 163K.
A single share of stock in Baba is the metaphorical equivalent of putting a dollar to work, betting these people to continue to produce something that others want. It has an outstanding float of 2.72 billion shares and generated Revenues of 134 billion, while Google which has a float of 14 billion shares and generated
256 billion in Revenues.
Present investors essentially pay 2 cents for a dollar revenue for Baba's "printing machine" for each per share cost, while with Google you pay 5.4 cents. Yet without any qualm institutional investors hold 65% of Google in core holdings and will not dare to sell it for fear of criticism, while in comparison Baba has only 16% of Institutional holdings. ( Munger despite his narcissistic aging Ego- is not completely stupid)
In conclusion: I wish everyone a good day, and I hope you are entertained no matter what you think or do .. u know me as magic quotes
@MagicQuotes.com great comment. Thank you!
ransim7222 profile picture
"Factory output and new orders slowed to a pace not seen since the middle of 2020, and retail sector employment was the worst in more than two years, according to the latest survey from CBBI, a provider of independent economic data. Revenue growth for manufacturers and retailers deteriorated, curbing profits, it said.
After a reprieve in June, when Covid restrictions in places like Shanghai and elsewhere were eased, virus cases flared up again in multiple regions, a threat to the economy’s fragile recovery. Factory activity unexpectedly contracted in July and property sales continued to shrink, data published Sunday showed. Top leaders have signaled a softening on this year’s official growth target of around 5.5% as they stick to the Covid Zero strategy.
“Beware the July rebound narrative. Markets are convinced that easing lockdowns mean the worst is over, but July data show that firms are still largely refusing to invest, borrow and especially now, hire,” Leland Miller, chief executive officer of CBBI, said in the statement. “This is likely because companies simply do not believe that their Covid Zero nightmare is over.”
ransim7222 profile picture

China’s Economy Deteriorated Further in July, Beige Book Says

(Bloomberg) -- China’s economy weakened further in July amid a resurgence in Covid outbreaks, China Beige Book International said, warning that market optimism about a rebound is misplaced.
Bilbozark profile picture
Unfortunately, now BABA has turned into a trading stock. The company fundamentals will not shine in this paper war environment. When those who got back in around 100 they will sell to just get out, then down it goes again.
There are casualties to war. In this case those 'investors' will be collateral damage in the global control and trade wars, you probably will not benefit as an investor.
Our leadership will do anything to keep your money here in the US. Why, because the Dollar has been weaponized. Think about it. Nonetheless there are casualties like inflation and bubble pumping, death by drips for another generation without the handwashing of Pilate.
As a SPECULATION and TRADER? well that is another game that is a hot topic here on SA.
@Bilbozark Buy at $75 and sell at $85. Possible soon.
@Bilbozark how will the US weaponise the dollar?

The level of debt means that people will start moving away from the USD. The USD has strengthened recently as US investors repatriate their money in the downturn but at some stage all the money to repatriate will be done.
@ajmacknz ….. and where is most US debt?… China right?
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