E-commerce giant Alibaba (NYSE:BABA) is often considered the Chinese equivalent to America’s Amazon (NASDAQ:AMZN). The two companies even have comparable sales mega-events. Whereas Amazon had Prime Day (which was actually two days) on Oct. 13 and 14, Alibaba stock holders waited with bated breath for the results of Singles’ Day on Nov. 11.
Just try to imagine combining Black Friday and Cyber Monday into one sales event. Then double that amount, and basically that’s how big and important Singles’ Day is for Alibaba.
Given all of that, one would think that a strong result for Singles’ Day would be enough to keep Alibaba stock at all-time highs. Yet, another event has induced a sizable dip in the Alibaba share price.
What development could be so disastrous that it would overshadow Singles’ Day? And, is it a sufficient reason to dump one’s Alibaba shares? Sit tight as we explore these billion-dollar questions and, hopefully, build a bullish argument in favor of owning Alibaba stock.
A Closer Look at Alibaba Stock
What’s great about Alibaba stock is that it typically has deliciously buy-able dips within an overall uptrend. It’s a swing trader’s delight, though the upward incline means that long-term investors can also choose to buy and hold the shares.
So, let’s discuss the recent share-price dip in Alibaba stock. From Oct. 27 to Nov. 18, the stock fell from $317 to approximately $255. That’s not as deep as the novel coronavirus price dip in March, but it’s still a sizable haircut.
If you already owned shares of Alibaba stock, then you probably didn’t enjoy that pullback. For prospective investors, though, it’s good news because the drawdown helped to bring the trailing 12-month price-to-earnings ratio down to the 29 area.
That’s a very reasonable valuation for an e-commerce stock nowadays. For comparison, just consider that Amazon stock’s 12-month price-to-earnings ratio is 90.62. Therefore, value investors really ought to consider a position in Alibaba stock.
The Not-So-Big Setback
So, what seemingly disastrous event would cause Alibaba stock to pull back as much as it did? When we put the event under a microscope, we’ll see that it’s not as big or as bad as people might think it is.
Not long ago, the initial public offering (IPO) for Alibaba-backed financial services company Ant Group was expected to be the world’s biggest IPO. Reportedly, however, Alibaba founder Jack Ma criticized the Chinese government in a speech on Oct. 24, thereby drawing the ire of regulators.
Possibly as a result of this, Chinese regulators have suspended the Ant IPO. It’s even been said that Chinese President Xi Jinping ordered the IPO’s halt.
Pardon the pun, but it feels like bearish traders are making a mountain out of an ant hill. The Ant IPO would have benefited Alibaba, no doubt, but Alibaba remains supremely profitable as a business.
Proof Is in the Numbers
If you need evidence to back up that last statement, check out the stats for Single’s Day.
Believe it or not, Alibaba recorded $75 billion in sales for this year’s Singles’ Day event. That’s outstanding for a company that’s dealing with regulatory issues.
And by the way, over $5 billion of that $75 billion in sales came from the U.S. This indicates that Alibaba’s influence and brand recognition are expanding beyond its home country’s borders.
Moreover, this year’s result absolutely crushed expectations as last year’s Single’s Day event “only” brought in around $40.6 billion in sales (which itself was quite impressive at the time).
The Bottom Line on Alibaba Stock
Granted, the suspension of the Ant IPO is disappointing to long-term Alibaba stock holders. Still, let’s not lose sight of Alibaba’s stature as an international and richly profitable e-commerce company.
Another record-smashing Singles’ Day proved, if we even needed proof at all, that Alibaba’s an unstoppable force in a world that thrives on e-commerce.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.