- Alibaba is breaking out above major resistance, and for good reason.
- China/U.S. trade deal tensions appear to be easing, the company continues to report extremely strong numbers, and the stock is cheap.
- Moreover, Alibaba is expanding its internet empire by developing numerous businesses, funding them by the tremendous cash flow it generates from its core commerce operations.
- Analysts seem to agree that the stock is undervalued.
- If the global economy remains stable, I see Alibaba moving towards $250 or higher within the next 6-12 months.
- This idea was discussed in more depth with members of my private investing community, Albright Investment Group . Get started today »
Alibaba's Beautiful Breakout
Alibaba's (BABA) breakout above $200 is significant, and it suggests the stock can go substantially higher from here. After hitting a post-IPO low of below $60, BABA had a stellar run-up, more than tripling in roughly 2 years. However, since then, BABA has been in a prolonged consolidation phase, and the stock finally looks ready to begin its next wave higher.
Image Source: StockCharts.com
Alibaba is expected to continue to grow revenues at roughly 30% per year in fiscal 2020 and in fiscal 2021. Considering the company's rapid revenue growth rate, the stock appears extremely cheap, trading at roughly 20 times forward earnings or lower (by my calculations). Additionally, Alibaba continues to expand its portfolio of businesses, diversifying in cloud, media/entertainment, and in other innovative initiatives and solutions.
At $200 per share, Alibaba remains an incredibly undervalued conglomerate likely to expand revenues, EPS, and its share price substantially in future years.
In a previous article, I wrote in August, I mentioned that Alibaba was a "Strong Buy Into Earnings". Since then, the stock has appreciated by about 22%. Nevertheless, despite the significant rise, the technical image remains very bullish.
We see the stock clearly breaking out above the $190-195 resistance level on very strong volume. Despite some technical indicators (RSI, CCI, etc.) suggesting that shares are overbought on a short-term basis right now, the stock is likely to consolidate around the $200, possibly move sideways in the short term, before it begins its next wave higher. If the global economy stays intact, Alibaba's next wave could take shares to around the $250 level or higher in my view.
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