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Why Alibaba Stock Popped over 6% Today?

Motley Fool2021-12-22

What happened

Shares of Alibaba(NYSE:BABA)stock bounced back from yesterday's tech sell-off, gaining 6.89% on Tuesday as stock market analysts debated whether the company's just-announced turnaround plan will work or not.

So what

Hong Kong-based investment bank CLSA led off with the bull argument, calling Alibaba stock "cheap" at its recent price under $123 a share. CLSA predicts that as Chinese consumer spending grows, as Alibaba expands further into international markets, and as Alibaba's own technology improves, these three "strategic engines" will propel the company's growth, reports TheFly.com.

Of these three "engines," CLSA places the greatest weight on Alibaba's technological prowess, saying the company "enjoys unparalleled competitive advantages and a strong technological lead," in particular in cloud-based computing, which will be "the next big growth pillar" for Alibaba stock.

In its bearish rebuttal, though, U.K. stock broker Atlantic Equities says it has little confidence that Alibaba's Taobao and Tmall subsidiaries will perform well in the near term. The analyst agrees that Alibaba stock looks "inexpensive" at 17.5 times earnings. Still, Atlantic worries that Alibaba's "aggressive" spending on improving the technology that so impresses CLSA won't necessarily pay off for Alibaba. And in particular, Atlantic sees the company's investments in "AliCloud" as being only a "modest" catalyst for the stock.

Now what

For today, it appears that investors are buying CLSA's argument over Atlantic Equities'.

Ultimately, though, this debate is going to come down to growth. Sure, 17.5 times earnings looks like avalue price for Alibaba stock -- but only if the company can produce enough growth to justify the valuation. While it's true that Alibaba has exhibited some fine growth in the past (a 30% compound rate of growth in earnings over the last five years for example, according to S&P Global Market Intelligence data), over the next five years, most analysts don't see the company producing even 10% annual earnings growth -- but less than 9% instead.

If that's the best Alibaba ends up doing, I fear that today's rebound in stock price will be short-lived.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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Comment37

  • saya_
    ·2021-12-23
    Bloop bloop
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  • Jialatsia
    ·2021-12-22
    Meep
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  • LimLS
    ·2021-12-22
    Alibaba going up and down for a single day or few days is normal nowadays. Very volatile. Need to track its performance over many more days to see where it is going. One day price movement Just do not provide any good information, however big it might be.
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    • zippiee
      Your idea is right. Rome wasn't built in a day, and the stock price performance of a day can't represent whether a company's stock is worth buying.
      2021-12-22
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    • bubbly9
      Alibaba's share price is now at a low level. There's nothing wrong with buying now.
      2021-12-22
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    • quixy
      There is no doubt that investing in Alibaba is equivalent to investing in the future.
      2021-12-22
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    View more 2 comments
  • SanWangtikup
    ·2021-12-22
    Good
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  • 我i168
    ·2021-12-22
    UBS analyst: [Tongue] [Happy] BaBa, black sheep,Have you any wool?Yes sir, yes sir,Three bags full.
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  • Alienhead
    ·2021-12-22
    阿里、阿里巴巴、阿里巴巴是個快樂的青年~
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  • 7united
    ·2021-12-22
    Hugely undervalued. Hold and wait!
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  • kenjoe
    ·2021-12-22
    Alibaba will last. 
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    • Kazren
      Yup
      2021-12-22
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  • Wensheng
    ·2021-12-22
    Like please
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  • DragonKC
    ·2021-12-22
    Those have interest in Baba will say it's stock is cheap, whereas those bet again BaBa will bring  down price.  Everyone has their own agenda.  Best to judge ourselves. 
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    • WenJieChan
      [smile]
      2021-12-22
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    • Traderabbit
      k
      2021-12-22
      Reply
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    • keaty
      I stop buying for a while now. not so soon the china... thing go away
      2021-12-22
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  • Ah Deck
    ·2021-12-22
    No comment
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  • JLKang
    ·2021-12-22
    I agree with your sentiment 
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  • Tmchoo
    ·2021-12-22
    .
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  • Barbarazhao
    ·2021-12-22
    Only time tells
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    • Tmchoo
      .
      2021-12-22
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  • LucasOng
    ·2021-12-22
    Not useful for long traders
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  • Grace1206
    ·2021-12-22
    Tell me your opinion about this news...
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  • STtee
    ·2021-12-22
    Should we bet on this??[Sly] 
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  • HENRYCSC
    ·2021-12-22
    Like pls 
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  • tig2021
    ·2021-12-22
    Ok
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  • June C
    ·2021-12-22
    Long way to bounce back
    Reply
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