BABA stock is worth 50% more at $ 318.50 for a 25-fold PE
Over the past year, Ali Baba (NYSE:BABA) has had a rough time and is up just over 5% as of May 25. In fact, since the beginning of the year, the stock of BABA has been down almost 10%, according to Seeking Alpha. Most of this decline occurred in the last quarter, despite strong first quarter results which were released on May 13.
Alibaba announced that its first quarter revenue grew 64% year-over-year (year-over-year) and that its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) increased by 18 %. That figure is now $ 4.563 billion.
However, for the first time in its history, the company fell to a quarterly operating loss of $ 1.17 billion. However, this was due to a one-time penalty of $ 2.11 billion from the Chinese government.
Compared to its market value of $ 572 billion, BABA stock is now trading at just 3.9 times estimated forward sales for 2022, according to Seeking Alpha. Moreover, its price / earnings (P / E) ratio is only 20.5 times.
In addition, the company has a very attractive expected P / S ratio for 2022 and an attractive P / E multiple for 2022. Analysts forecast revenue of $ 145 billion next year and $ 175.75 billion. dollars in 2023, up 21% in 2023. That gives it a P / S multiple of just 3.25 times (or $ 572 billion / $ 175.75 billion).
Additionally, analysts are forecasting earnings per share (EPS) of $ 12.79 in 2023, up 24% from the $ 10.29 expected in 2022. This puts BABA stock at a P / E 2023 multiple. futures only 16.5 times at the current price (May 25) of 211.73 USD. .
Compare that with Amazon (NASDAQ:AMZN). According to Yahoo! Finance, analysts believe that next year the company will make EPS of $ 72.09, up 29%. At the current price of $ 3,268, this places the AMZN stock at a 45x futures P / E ratio. This is 173% higher than Alibaba, which implies that the BABA stock is deeply undervalued.
You can’t really say the difference in BPA growth rates is that big – 21% at Alibaba versus 29% at Amazon. Therefore, it doesn’t really take into account the huge difference in the valuation parameters of the BABA stock.
And that’s the catch. Why is BABA stock so cheap? It probably comes down to the China question. Not all Chinese things are so popular in the United States anymore, especially in the markets.
In addition, Alibaba had some problems in China. On April 10, they accepted a $ 2.8 billion antitrust fine of the State Administration for Market Regulation (SAMR) in the PRC. It is indeed a slap on the wrist, since the fine represents only 4% of its 2019 turnover.
In addition, as the Financial Times points out that the company now faces fierce competition from e-commerce companies that are prone to take losses. The FT reported that Pinduoduo (NASDAQ:PDD) overtook Alibaba in annual buyers at the end of last year. It did so by offering huge discounts that Alibaba was unwilling to offer. The company is also struggling Meituan in food delivery. He decided to invest large amounts to compete with these loss-making peers.
But Alibaba continues to grow. Its mobile MAUs (monthly active users) increased 2.55% to 925 million in March 2025. This works out to an annualized rate of 10.59%. Considering the huge base it is based on, this is a great achievement. This essentially ensures that the company’s revenue will continue to show underlying growth.
What to do with the BABA stock
I suspect that over time the title will move to a higher valuation measure. It’s likely that by next year his anticipated P / E ratio could be well over 20x, say 25x. That would still place it well below Amazon’s 45 times higher P / E ratio.
Therefore, 25 x $ 12.74 equates to a target price of $ 318.50. That’s 50% above its price today of $ 211.73. Even though it takes a year for this to happen, it guarantees a very good return on investment (ROI) for most investors.
Analysts are also starting to change their minds. Yahoo! Finance reports that 47 analysts now have an average price target of $ 297.41, which is 40% higher than the current price. In fact, 48 out of 49 analysts have put the stock strong buy or buy since the release of its first quarter results on May 13, according to Yahoo! Finance.
My best guess is that BABA stock is still undervalued by at least 50% at $ 318.50. Long-term value investors in the company may find this prospect compelling.
As of the publication date, Mark R. Hake does not hold a long or short position in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com Publication guidelines.