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Alibaba: A Bullish Run That Doesn’t Just Stop At 2017

|About: Alibaba Group Holding Limited (BABA)

Summary

Alibaba's stock is now up by over 100% this year.

Growth is likely to continue next year on its "new retail" strategy.

A price target of $220 is achievable.

Alibaba (NYSE:BABA) has had an impressive run in 2017. Its stock is now up by over 100% year to date. But this bull run isn’t going to stop right here. Here we want to look at want the China-based e-commerce giant has lined up for the next year.

What’s In Store For 2018

Here’s what Alibaba’s revenue figures are looking at: between 49% and 53% growth for the fiscal year. This figure follows up on an already staggering 60% sales growth this year. In fact, the company generates more sales than rivals Amazon and eBay combined.

Alibaba is already the biggest e-commerce company in China, where over half of the world’s e-commerce sales are happening. The company controls 80% of the Chinese market with over 500 million users. This company is basically the dominant market force in one of the fastest-growing economies in the world.

The company has been promoting the idea of “new retail” for the past year, which is essentially a new innovative approach to remove the boundary between online and offline retail through improved logistics and data processing to fulfill the personalized needs of each customer. It is also looking at technologies like artificial intelligence and face recognition.

What this means is that it is aiming to leapfrog its competition in the U.S. within the next few years by both investing in revolutionary technologies and becoming a dominant force in the retail sector.

It is already moving beyond online sales. Alibaba has already acquired its own retail store network and is looking to continuously expand on that. It will also look to challenge its Western rivals, as it has already established its dominance in the Asian market. In 2018 and beyond, these will be the company’s areas of focus.

Investment In China’s Top Hypermart Operator

Alibaba has recently agreed to invest $2.87 billion in Sun Art Retail Group Ltd., the top hypermart operator in China, as part of the “new retail” strategy. This move positions Alibaba to move into China’s $500 billion food market, just like how Amazon did with its Whole Foods acquisition.

Deal With Ford Motors

Alibaba has just signed a deal with Ford Motors Company to test online car selling in China. This is a big breakthrough for both companies: Alibaba adds a big name partner in the North American market and new retail opportunities, while Ford gets to enter the largest e-commerce and auto market in the world.

Lazada Acquisition

Earlier this year, Alibaba upped its stake in leading Southeast Asian e-commerce firm Lazada to 83% from 51%, paying close $1 billion during the process. Southeast Asia is currently the up-and-coming market for e-commerce. According to Google, e-commerce in this region is on pace to grow to $88 billion a year by 2025, up from just $5.5 billion in 2015.

High Growth To Continue

It is hard to imagine that this tech giant that is going head to head with its Western rivals has been in existence for only 18 years. This means it still has room to grow even more.

Its latest earnings report showed a non-diluted EPS (earnings per share) of $1.29, which was in line with analysts’ anticipations. But the next quarter could return an estimated EPS of $1.62 that may even go as high as $1.92. The next quarter should see a big jump thanks to the Christmas shopping season and a brand new calendar year.

After the recent tech stock selloff, it seems that Alibaba has bounced back from the $170 support level. Further gains are expected as the market settles down as a new Republican tax bill gets passed, which is expected later this month.

Price Target

On Thursday, December 7, equity research analysts at Susquehanna began coverage on the company’s stock, giving it a positive rating and a price target of $220 (it’s currently trading at $174.47 a share). A total of 45 of 48 Wall Street analysts have now assigned a “Buy” rating to this stock.

The price target seems certainly attainable when you compare Alibaba’s price earnings ratio with the industry. At a P/E ratio of 39.35 (based on current prices), which is much below the industry average of 56.00. If we also take the PEG ratio (P/E ratio divided by the growth rate) — currently sitting at 1.32 — the stock is severely undervalued against other tech stocks.