Alibaba Group Holding Limited (BABA): A Bull Case Theory

We came across a bullish thesis on Alibaba Group Holding Limited (BABA) on Twitter by Yannis Stamatopoulos. In this article, we will summarize the bulls’ thesis on BABA. Alibaba Group Holding Limited’s share was trading at $107.89 as of October 9th. BABA’s trailing and forward P/E were 27.13 and 12.56 respectively according to Yahoo Finance.

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Alibaba ($BABA) presents an intriguing investment opportunity given several key factors. Penetration in China’s e-commerce market is projected to increase from 30% to 40% over the next five years, supported by prevailing secular trends. Additionally, Alibaba’s cloud and AI initiatives are set for substantial revenue growth, creating a secondary growth trajectory that will improve EBIT and free cash flow. Moreover, international commerce and other non-core sectors are expected to become profitable soon, which will reduce pressure on overall performance and margins. The new management team is actively repurchasing shares and has committed to retiring 3% of the stock annually for the next three years. Coupled with a 1.5% dividend yield, this leads to a total shareholder yield of 4.5%, nearing the yield on 10-year treasuries. Furthermore, up to $20 billion in fresh capital from mainland Chinese investors is anticipated to flow into the stock through the Stock Connect program, representing approximately 10% of the float. Overall, Alibaba is viewed as a compelling turnaround story rather than a value trap.

Alibaba Group Holding Limited is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 91 hedge fund portfolios held BABA at the end of the second quarter which was 103 in the previous quarter. While we acknowledge the risk and potential of BABA as an investment, our conviction lies in the belief that some 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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Disclosure: None. This article was originally published at Insider Monkey.