Top Picks 2016: Alibaba
01/18/2016 7:00 am EST
My Top Pick for growth investors in 2016 is a company that dominates e-commerce in China and is constantly expanding its global footprint, asserts Paul Goodwin, editor of Cabot Emerging Markets Investor.
Alibaba (BABA) operates several main e-commerce sites—Taobao Marketplace, Tmall, and Juhusuan—which connect buyers with sellers, consumers with other consumers, and companies with companies.
The company owns an 80% share of China’s online shopping market, which is constantly growing as smartphones give more consumers online access.
After Alibaba’s $25 billion IPO in 2014, the company had a mammoth fund for acquisitions and development that founder Jack Ma has been using to buy out smaller rivals and other businesses with useful technology or niche markets.
Jack Ma was an English teacher who founded the business as a way for customers outside China to connect with Chinese suppliers.
The company’s 24-hour Singles Day shopathon on November 11, 2015, yielded $14.3 billion in sales, setting a new world record. And, like Amazon (AMZN), Alibaba is making a strong move to dominate China’s growing cloud services sector.
International commerce contributed just 9% of the company’s revenue during the last four quarters, but there’s no doubt that management wants to make Alibaba a player in the rest of the world.
Alibaba now has a market cap of over $217 billion and enjoyed 56% revenue growth in fiscal 2014 and 44% in 2015. After-tax profit margins have averaged well over 40% for years.
Sales in the first three quarters of calendar 2015 have increased by 45%, 28%, and 27%, respectively, and Q4 revenue will include that blockbuster Singles Day.
Earnings are forecast to grow 12% in 2016, partly because of M&A activity, but will swell by 32% in 2017.
BABA corrected from $120 in November 2014 (following its record-breaking IPO) to $57 in October 2015, but has powered back to $84 and is building a nice launching pad. It’s my pick for stock of the year.