1. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Alibaba Group Holding Limited (NYSE:BABA) is China’s largest e-commerce and cloud services company. The company also operates brick-and-mortar stores, logistics services, and digital media services. Once considered a high-growth bellwether of China’s economic growth, Alibaba suffered badly from the 2021 antitrust crackdown. However, BABA is rising again and has soared by 30% over the last year. The company improved its revenue growth from 2% in fiscal 2023 to 8% in fiscal 2024, the same expected for fiscal 2025.
Artisan Partners, an investment management company, has released its first quarter 2024 investor letter for the “Artisan Select Equity Fund.” Here’s what the fund had to say about BABA:
“Alibaba Group Holding Limited (NYSE:BABA) shares declined 7% during the quarter. There isn’t much new to say about Alibaba. There was no meaningful news that drove the share price decline. The earnings for the December quarter were fine, with revenues and profits both increasing 5%—not typically an exciting level of growth, but certainly enough to justify the company’s paltry valuation of 4X–5X EBIT. As we have written in recent letters, this is a valuation level that is normally reserved for a dying business, and Alibaba is not a dying business. Management continues to implement changes that are intended to increase shareholder value. Over the past year, they have changed management, adjusted the company structure, contemplated spinning off assets, made progress monetizing the balance sheet, and have improved the capital allocation. All of these actions have yet to be reflected at all in the share price. This is a stock that could double and would still be cheap.”
Alibaba Group Holding Limited’s sentiments have received a boost after the e-commerce giant announced plans to increase its service fees from merchants. The company plans to charge a 0.6% software service fee on transactions for sellers who list their products on Tmall and Taobao, starting September 2024. This news has been welcomed by investors as it is expected to boost the company’s core merchant revenue. In a research note, Jefferies analysts led by Thomas Chong highlighted that the 0.6% software service fee is viewed as a positive development as Alibaba Group Holding Limited (NYSE:BABA) earns most of its revenues from Taobao and Tmall.
On October 10, the South China Morning Post reported that Alibaba Group Holding’s Tmall shopping platform’s new brand increased by 239% from August to September. In the third quarter, Tmall’s new brand openings increased by 70% from the previous quarter.
Analysts expect Alibaba’s valuations to rise if investors go back towards China. Analysts project Alibaba Group Holding Limited (NYSE:BABA) to increase its revenue at a compound annual growth rate (CAGR) of 8% from fiscal 2024 to fiscal 2027. BABA is trading 12.26 times its forward earnings, which represents a 28% discount to the sector median of 17.14.
While we acknowledge the potential of Alibaba Group Holding Limited (NYSE:BABA) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BABA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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