Understanding the pros and cons of investing in Alibaba (BABA) stock

Rarely do market watchers recommend a stock so overwhelmingly as they have done in the case of Chinese e-commerce firm Alibaba (NYSE: BABA), with a consensus buy rating. The average price target of $224 represents a 26% upside from the last closing price. The stock’s recovery from its recent lows has been pretty steady.

The uptrend will likely be sustained at least until the next quarterly report, which is due in less than a month. The fact that the tech giant delivered above-consensus bottom-line numbers regularly for more than a year points to another positive earnings surprise in the upcoming report, bringing cheer to shareholders.

Call for Caution

While Alibaba is considered to be reasonably priced, there is bound to be caution given the low returns Chinese firms typically offer the holders of American depositary shares. Also, recent reports of the government planning to delist  Chinese stocks from US stock exchanges might discourage some investors. While it cannot be ruled out entirely, the possibility of a widespread delisting is remote as it would not be good for the domestic economy.

Related: Alibaba stock gains on Q1 earnings beat

Alibaba has and edge over its US rival Amazon (AMZN) when it comes to the stock’s affordability, though their operations have several similarities, to the extent that neither of them pay dividend. The good news is that BABA has a comparatively better cash flow. Still, the general risks associated with Chinese stocks is applicable in this case too.

Advantage BABA

The improvement in the prospects of US-listed Chinese firms, especially in the wake of the deescalation of the tariff dispute, should encourage investments in the stock. Moreover, the market value of the diversified tech firm rose by about a quarter since the beginning of the year, which is way ahead of the gains made by most of its peers and the S&P 500 index. So, approaching the stock with the willingness to take risk and right timing should payoff.

Future Perfect

CEO Jack Ma’s recent statement that Alibaba thwarts around 300 million cyber attacks every day, mainly targeting its Alipay payment arm, is testimony to the its rapid growth. The advanced technology, perfected over the years, has helped the company enhance customer experience and translate it into steady user growth.

Also see: Alibaba Q1 2020 Earnings Conference Call Transcript

Currently, the management is working to achieve its ambitious goal of serving more than one billion active customers annually in the next three years.

Listen to publicly listed companies’ earnings conference calls along with the edited closed caption text