Is Alibaba (BABA) A Smart Long-Term Buy?

Artisan Partners, a high value-added investment management firm, published its ‘Artisan International Value Fund’ third quarter 2021 investor letter – a copy of which can be downloaded here. A return of -2.84% was recorded by its Investor Class: ARTKX, -2.82% by its Advisor Class: APDKX, and -2.79% by its Institutional Class: APHKX for the third quarter of 2021, all compared to the MSCI EAFE Index that delivered a -0.45% return and the MSCI All Country World ex USA Index that was down by -2.99% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Artisan International Value Fund, in its Q3 2021 investor letter, mentioned Alibaba Group Holding Limited (NYSE: BABA) and discussed its stance on the firm. BABA is a Hangzhou, China-based e-commerce company with a $377.5 billion market capitalization. BABA delivered a -41.30% return since the beginning of the year, while its 12-month returns are down by -49.42%. The stock closed at $136.62 per share on November 22, 2021.

Here is what Artisan International Value Fund has to say about BABA  in its Q3 2021 investor letter:

“We also find Alibaba’s valuation compelling despite the prospect of increased regulation. The share price declined 35% during the quarter. Alibaba is China’s largest e-commerce business and is one of the highest return businesses in the world. The company’s core ecommerce operation dominates China’s retail industry. That business continues growing at a low-teens rate and operates with an incredible 62% profit margin. The company also operates several promising new businesses which have been a drag on the bottom line, though the company overall remains highly profitable and cash flow generative. The market cap today is about $440 billion. The company has large investments in cloud, financial services and other businesses worth an estimated $100 billion, leaving the core operations valued at $340 billion. Core operations over the last 12 months generated about $27 billion of after-tax profits, resulting in a trailing P/E of 12.5X. Alibaba certainly faces increased competition and a marginal increase in regulation. As a result, we expect modest growth in earnings over the next few years. However, a company with Alibaba’s operating and financial strength should trade at a premium, rather than a significantly discounted valuation.”

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Based on our calculations, Alibaba Group Holding Limited (NYSE: BABA) ranks 13th in our list of the 30 Most Popular Stocks Among Hedge Funds. BABA was in 115 hedge fund portfolios at the end of the third quarter of 2021, compared to 146 funds in the previous quarter. Alibaba Group Holding Limited (NYSE: BABA) delivered a -15.17% return in the past 3 months.

Disclosure: None. This article is originally published at Insider Monkey.