Alibaba Group Holding (NYSE:BABA) shares edged slightly higher today, rising about 1% despite a quiet news cycle. Investors appear to be weighing recent performance momentum, with Alibaba up nearly 39% over the past 3 months.
Alibaba’s strong rally over the past quarter is building on impressive momentum, with a 90-day share price return of nearly 39% and a 1-year total shareholder return of almost 66%. While the five-year total return is still negative, recent strength suggests investor sentiment could be turning as growth potential and valuation come back into focus.
With Alibaba’s shares surging and yet still trading roughly 17% below analyst price targets, investors have to wonder if the stock is undervalued or if the market is already pricing in the company’s future growth.
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Most Popular Narrative: 56% Overvalued
According to StefanoF, the most-followed valuation narrative suggests Alibaba's fair value sits far below the last close. Recent price action is seen as fully reflecting short-term growth potential rather than leaving meaningful upside. This perspective invites investors to dig deeper into the reasoning behind a price target that is much lower than today's share price.
Strong AI/cloud momentum with expanding market share, dominant e-commerce position in China, strong cash generation capabilities, reasonable valuation multiples relative to growth. Bottom Line: While Alibaba shows strong operational momentum, particularly in AI and cloud services, the current stock price appears to fully reflect near-term growth prospects given macro headwinds and geopolitical risks.
Curious how these projections stack up? The fair value calculation leans heavily on long-term revenue and profit growth assumptions, along with a discount rate fit for global tech giants. Want to know which variables might swing the outcome? The full narrative unpacks the numbers and rationale driving the surprisingly cautious fair value.
However, renewed regulatory pressures or a sharp escalation in US-China trade tensions could quickly change the cautious valuation outlook for Alibaba.
Another View: The Market’s Multiple Tells a Different Story
While the narrative-driven fair value points to overvaluation, a look at Alibaba’s price-to-earnings ratio paints a more optimistic picture. Trading at 17.9x, Alibaba’s valuation is well below both its industry average (20.6x) and peer average (43.7x). It also falls under the fair ratio of 28.9x. Could the market be missing a value opportunity, or is there a reason for the gap?
If you would rather rely on your own judgment or want to investigate the numbers firsthand, you can shape your own Alibaba outlook in just a few minutes. Do it your way
A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding Alibaba Group Holding.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.
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