Why Did Alibaba Stock Gain 13.5% in June?


Jul. 2 2019, Updated 5:31 p.m. ET

Alibaba’s stock returns

Alibaba (BABA) shares gained 13.5% in June. The stock gained 3.3% on July 1, which brought the returns to 27.7% in 2019. Currently, Alibaba stock is trading at $175.05 per share, which is 35.0% above its 52-week low of $129.77 and 12.0% below its 52-week high of $198.35.

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Alibaba announced a stock split

Last month, Alibaba announced a one-to-eight stock split. To learn more, read What Alibaba Hopes to Achieve with Its Stock Split. The company plans to list its shares in Hong Kong and raise ~$20 billion. Alibaba’s management thinks that the stock split will “increase flexibility in the Company’s capital raising activities, including the issuance of new shares.”

The stock split will likely increase the company’s liquidity. The security price is lower, so the stock becomes affordable for retail investors.

Market leader in China’s cloud industry

Alibaba is a market leader in China’s cloud segment. The company is still a smaller player in the global cloud market. According to Synergy Research, Alibaba accounts for 5.0% of the global cloud market. The global cloud market space is dominated by tech giants like Amazon  (AMZN) at 35.0%, Microsoft (MSFT) at 15.0%, Google (GOOGL) at 7.5%, and IBM (IBM) at 6.0%.

Alibaba’s valuation

Alibaba shares have been volatile in 2019. Although the company’s returns have been impressive in 2019, the stock rose 42.0% in the first four months of 2019. The stock fell 18.0% in May 2019. The escalating trade war between China and the US impacted several companies’ stock prices including Alibaba.

Since trade tensions have eased, investors’ sentiment will likely improve. Alibaba stock rose 3.3% on July 1. The stock is trading at a forward PE ratio of 19.9x. Analysts expect Alibaba’s earnings to rise 21.8% in 2019 and 29.3% in 2020.

Alibaba’s earnings are estimated to grow 26.8% annually in the next five years. The stock looks undervalued considering the PE ratio, which we discussed last month as well. To learn more, read A Look at Alibaba’s Stock Returns since May 2019. Since then, Alibaba stock has increased considerably.

The 48 analysts covering Alibaba stock gave a 12-month average target price of $217.85. The target price indicates an upside potential of 24.5%. Moving forward, Alibaba will likely benefit from the growing e-commerce market. Alibaba looks like a solid long-term bet.


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