Alibaba: The One Buy in China

04/07/2016 10:00 am EST


Todd Shaver

Founder and Editor-in-Chief,

We don’t generally invest in China, but this recommendation is the lone exception and we are adding this to our Special Opportunities Portfolio, notes Todd Shaver, editor of The Bull Market Report.

Alibaba (BABA) is a Hangzhou, China-based company founded by Internet billionaire Jack Ma. Alibaba is a combination of eBay, Amazon, Google, Expedia and PayPal.

Then just for fun, add a touch of the online versions of Costco and Home Depot and that will get you close to what we are talking about.

If Alibaba Group Holdings is still not all that familiar to you, perhaps it’s because most of their activities reach out to China and nearby parts of Asia. 

Revenues have more than doubled in recent years, averaging growth of better than 40% annually. 

Driving this growth has been China’s growing mobile society that has pushed mobile revenues up five-fold in just the last year. 

The share of total revenues from mobile customers increased from 7% in 2013 to a staggering 65% in 2015. Mobile has become China’s single most powerful electronic device.

Alibaba has more than 400 million active buyers at their various websites with the total growing more than 25% annually.

There has been plenty of news lately concerning an economic slowdown in China. After double-digit growth in recent years a slowdown in China might still mean higher growth than in other parts of the world.

Whatever happens, there is some slowdown built into Wall Street expectations. Full year results for the year that ends on March 31, 2016 are expected to increase 40% to $17 billion followed by a 30% gain to $22 billion in 2017. 

Per share earnings forecasts are $2.30 and $2.95.  If that is what Alibaba is capable of performing during a slowdown, bring it on.

Few companies in the world can match the financial strength and quality of Alibaba Group. They have $18 billion in cash and just $8.7 billion in long-term debt. The quality of a balance sheet of this type and the flexibility it offers hardly needs further comment.  Amazing.

We love finding great companies, growing rapidly and selling at reasonable prices. That’s what makes for a good special situation. 

At one time as recently as 2011, the shares were valued at stratospheric levels more than 200 times earnings. We have long loved the company but were simply unwilling to chase the Wall Street crowd.

Today, the company is growing earnings at better than a 25% rate. Priced well below its 52-week high of $95, and the all-time high of $120, it’s time to buy.

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By Todd Shaver, Editor of The Bull Market Report

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