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A Look at Alibaba’s Stock Returns since May 2019

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Alibaba stock has lost over 18.0% since start of May

Chinese (FXI) stocks have been volatile since the start of 2018. The trade war uncertainty has impacted most stocks. While Chinese stocks made a comeback in the first four months of 2019, the recent trade war escalation has again created an uncertain environment and driven prices lower. Here, we look at the performance of China’s tech giants since May 2019.

Shares of Alibaba (BABA) have declined 18.3% since the start of May. The stock had gained 35.4% in the first four months of this year and is now up 10.6% year-to-date. Alibaba stock is currently trading at $151.65, which is 28.2% below its 52-week high of $211.12.

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Cloud is fastest growing segment for Alibaba

The cloud business has been Alibaba’s fastest growing segment and the company is adding several customers on a global level. In its fiscal 2019 fourth quarter, which ended in March, Alibaba’s cloud sales grew 76% YoY to $1.2 billion. Cloud sales still account for less than 10.0% of total sales.

Is Alibaba stock undervalued?

Is the recent pullback an opportunity for investors? Alibaba’s sales growth remains impressive and is expected to grow at a compound annual growth rate of 30.0% in the next three years.

Alibaba stock is currently trading at a forward PE multiple of 23.2x. In comparison, its earnings per share is estimated by analysts to grow by 42.0% in fiscal 2020 and by 52.2% in fiscal 2021. The company’s earnings per share are estimated to grow at a CAGR of 26.7% over the next five years, indicating that the stock is undervalued considering the PE multiple.

How do analysts view Alibaba?

Out of the 48 analysts covering Alibaba, 47 recommend a “buy” and one recommends a “hold.” There are no “sell” recommendations. Analysts have an average 12-month stock price target of $208.69 for Alibaba, indicating the stock has an upside potential of 38.0% from its current price.

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