E-commerce giant Alibaba (BABA) releases its earnings report on November 2nd amid a rocky economic and political environment that is bogging down China. Concerns over trade wars have taken a toll on the stock as well (decelerated about 24% year-to-date).
Despite all this, Baird top analyst Colin Sebastian reiterates an Outperform rating for the stock with a price target of $215, showing nearly 63% upside. Sebastian suggests there is optimism to be felt about the company’s long-term growth trajectory due to investments in new retail, cloud computing, and digital media.
Though data revealing China’s consumer market shows it is slumping a bit, Sebastian says now is a good time to capitalize on China’s burgeoning middle class as online shopping, delivery services and online entertainment are growing and monetizing.
“The company continues to emphasize innovation and share gains in the enterprise technology/cloud market, adding to the midterm pressures on margins, largely driven by passing technology cost savings on to customers. Given the increasingly tough competitive landscape (including a growing cloud emphasis from Tencent), we anticipate BABA will continue to prioritize investments in infrastructure and platform services. Moreover, we expect continued aggressive investments in content creation and licensing to support growth of digital media assets,” Sebastian said.
Looking ahead, the company’s guidance implies “largely stable Y/Y revenue growth rates…We note that some caution is warranted on profit margins as investments continue to ramp, although longer-term these should help widen Alibaba’s competitive moat across the business segments.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, 5-star analyst Colin Sebastian has a yearly average return of 21.5% and a 64% success rate. Sebastian has a 57% average return when recommending BABA, and is ranked #26 out of 4,887 analysts.
Sebastian is not the only one with faith in BABA. Out of 21 analysts reviewed by TipRanks in the last three months, every single one has rated the stock a Buy. The consensus price target is $220.81, showing a 64% upside from where the stock currently sells. (See BABA’s price targets and analyst ratings on TipRanks)