MKM Partners’ research department has made their top picks just ahead of the new year and the list includes Chinese retail giant Alibaba (BABA). Analyst Rob Sanderson rates BABA stock a Buy with price target of $245, which shows a potential upside of 70%. (To watch Sanderson’s track record, click here)
The analyst asserts BABA’s “ecosystem” is even superior to Amazon’s, suggesting it has more users, 2.6x the transaction volume, more data and the best financial technology to support it all. Sanderson notes the biggest reason for bearish sentiment surrounding BABA is at the macroeconomic level. Geo-politics are putting a strain on investors, who worry the U.S. could add regulations that would negatively impact business if the trade dispute escalates.”
Nevertheless, Sanderson says he’s positive about the stock: “Valuations of China Internet stocks have been pressured by geo-political and macro-economic concerns, which we think will eventually normalize higher. We think the infrastructure to fulfill retail consumption in China is not sophisticated and is quickly being replaced by data and technology-driven models.[…] We value the marketplace profits at 25x, below premium U.S. retail assets despite significantly more growth, much higher margin and unparalleled scale and supporting ecosystem. We assign $134bn of value to investments and emerging businesses, using latest private funding rounds or valuation at time of consolidation ($50bn is from Ant Financial and $42bn Ali Cloud).”
The analyst reminds us in 2016 and 2017 BABA boasted strong returns, but took a break in 2018, which he says allowed for overbought technical indicators to reset.
Wall Street tends to agree with Sanderson’s confidence on the e-commerce giant, considering TipRanks analytics reveal BABA as a Strong Buy. Out of 24 analysts polled in the last 3 months, all 24 are bullish on Alibaba stock. With a return potential of nearly 45%, the stock’s consensus target price stands at $204.61. (See BABA’s price targets and analyst ratings on TipRanks)