Alibaba (BABA) stock has fallen close to 30% from its high in June and blogger Mott Capital Management (MCM) thinks the answer is clear why: trade war tensions between the U.S. and China. But now with the G20 international business forum and a scheduled meeting for President Trump and President Xi Jinping, MCM thinks the tides could turn, making a big splash for the Chinese e-commerce giant.
The blogger points out that though the company reported great second-quarter earnings, estimates for 2019 have dropped by 20% — down to $5.18 per share and 2020 estimates have fallen 21.5%. However, the good news is that earnings growth is expected to be healthy and rise up to 30% in 2020. 2021 is forecasted to have earnings of 31.5%, which MCM says is making the share price “too cheap.” “Additionally, those earnings estimates may have a significant tailwind should trade tensions ease following the G20 Summit. That’s because the RMB would likely begin to strengthen helping to lift earnings estimates,” MCM added. The blogger also notes the company’s revenue is generated in RMB, or Renminbi, the Chinese currency and then reported to U.S. investors in dollar amounts, since the stock is only listed in the U.S.
The stock is a survivor — pulling through a market downtrend that has been in place since July. Because of that, plus the fact that options traders are betting on the stock as well, MCM believes BABA is going to rise in the short term. While the blogger is confident in the stock, he warns there’s a lot at stake and it all depends on … politics.
“The most significant risk for the stock would be a failed negotiation at the G20 Summit between the US and China. There is even a risk that tensions could escalate between two nations and that would be a big problem for Alibaba’s stock. The outcome would likely result in the RMB continuing to weaken and putting further downward pressure on Alibaba stock. Should the G20 Summit prove to be a success, then Alibaba’s stock has much to gain,” MCM said.
TipRanks has found that all the analysts who keep an eye on BABA are betting on it. Out of all 23, not one is on the sidelines or running for the hills. The consensus price target stands at $205.41, which shows an upside of just about 32%. (See BABA’s price targets and analyst ratings on TipRanks)