Category Investments

Stock Pick of the Week with Momentum Securities: 10 June - Alibaba Group

10 June 2021 Momentum Securities

Momentum’s leading stockbroking division – Momentum Securities – will be bringing you their Stock Pick of the Week, each week on a Wednesday or Thursday. The stock pick motivation is available as written content and a downloadable video and audio clip.

This week’s pick: Alibaba Group
About: Alibaba Group Holding Limited, also known as Alibaba Group and, is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology.

Portfolio Manager for Momentum Securities, Chris Napier shares his insight on Alibaba Group

Click here to download:

• the audio clip
• the video clip.

“My stock pick this week is a company that needs no real introduction. It's an e-commerce giant that has recently come under pressure from regulatory authorities in China, which saw them pay a $2.8 billion anti-monopolistic fine. They experienced an earnings per share missed in the fourth quarter and we saw the listing in their Fintech division and group put on hold. This really speaks to the old adage, that when it rains, it pours. My stock pick this week is Alibaba Group and their Hong Kong listing under the ticker code 9988.

Alibaba is an online and mobile commerce business based in China, but operates globally. Their four segments are of core commerce, cloud computing, digital media and entertainment, and innovation initiatives. Now the core commerce business is what really generates the bulk of their revenue profitability and allows them to still hold the medal of being one of the top 10 most valuable companies on the planet.

Their most recent annual results sorting earnings per share missed - but this is mainly due to the ones for fines. However, we did see a 41% increase in revenue over the same period and EBITDA increased 25% over the year. What really caught the eye was a 31% bump in free cash flow over that same period. This has assisted in ensuring the company doesn't rest on its laurels and they'll continue striving for better innovative products for the 811 million monthly users.

We've seen over the last five years that over 10.4% of their revenue was spent on research and development alone. China's e-commerce market is valued around by 2.1 trillion, with expectation of this number going to 3 trillion over the next 3 to 4 years.

I would definitely look at a company that has over 50% market share in the consumer to consumer segment. The company trades in a P/E around about 25 times with their biggest competition, in Amazon, trades closer to 60. The share price is currently trading just over 30% of its all-time highs and now currently on 212 Hong Kong dollars. We have a busy week ahead from a dollar perspective and we might see some volatility in the markets - I'd be looking to build a position in between 200 and 250 Hong Kong dollars.”

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