5 Reasons to Buy ALIBABA Stock

The Chinese e-commerce giant Alibaba. Their stock is currently down by 65% from its highs and in today's article, I'm gonna give you guys five reasons why I'm personally buying this stock right now. The five reasons in no particular order of why I'm investing in Alibaba stock for the long term. 

#1. Number

Reason number one is the stock price As of recording this video Alibaba stock has fallen by about 65% from its highs, which not only leaves it near the bottom of its 52-week range. But it also means that the stock is actually down by almost 20% in the past five years. Meanwhile, the broader market has performed much better with the s&p 500 up almost 60%, and the tech-heavy NASDAQ up over 80%.

And one of the most comparable companies, at least here in America being Amazon, they're also up over 126%. But with Alibaba crashing so hard, the valuation is now dirt cheap, with a forward PE ratio of just around 13 and a PEG of one, just about a year ago that valuation was more than double what it is today. 

And the reason why I say that it's a dirt cheap valuation is because of how much growth this company is still experiencing, despite its massive size, and what they can still do in the future. 

#2. Number

The reason number two, that being their growth. This is a company that when it's firing on all cylinders, and the economy is actually recovering and doing better, it is able to put up gigantic growth just like they did even during the 2020 economic collapse, where they did over 40% revenue growth. 

And even coming off of such an explosive year that was largely fueled by lockdowns and people having to do their shopping online, they were still able to put up close to 20% growth in 2021. Now things are clearly slowing down here in 2022. 

But here in 2022, they've now shrunk down to single-digit growth. But you have to put that into some context. For one, they're coming off of two explosive years that saw them break the $100 billion mark in revenue. So you're gonna see a little bit of a correction. 

For 2 It's at a time when the world economy is finally starting to experience the repercussions of all the mindless money printing and spending that governments around the world have done in order to keep people locked down and not working through the pandemic.

And, of course, we're still experiencing the effects of that not only in inflation but even through supply chain disruptions, which obviously hurt the largest retailers in the world. 

Number three, it's also at a time when China themselves have done everything in their power to regulate and heavily disrupt their giant tech companies by laying down heavy fines and new rules and regulations. But while their dominance will always mean that they do get hit hard during difficult times.

#3. Number

Reason number three, which is their massive size and dominance. As it stands Alibaba is not only by far the largest e-commerce player in China and nearly 50% of the entire market. And really those companies are not even close to just around 15% each. But Alibaba is also a huge player in many other markets, that they're either already dominating or hoping to dominate in the future. 

For example, they already command the most cloud market share in China at almost 40%. They own about a third of Ali pay, which accounts for over half of the mobile payments market in China. And what is essentially a duopoly with Tencent, and they're even expanding into new markets like gaming, electric vehicles, and even traditional retail.

Where they're reviving brick-and-mortar stores by upgrading them with various e-commerce tools, software, and services. And that's actually an area that I think analysts are not paying enough attention to. Because while it is true that China completely dominates the worldwide e-commerce market with the next closest competitor in the United States.

It still being more than three times smaller, you actually do still have to keep in mind that only around 20% of sales in Asia are even done online. So Alibaba still has a ton of room to grow there and in traditional retail and even internationally as well. And that's something that they are focusing on. 

#4. Number

Reason number four, which is the recovery. While it is true that the macro economy is essentially a disaster right now and China themselves have been putting it ton of regulatory pressure on their biggest tech firms, there is at least some reason to be more optimistic about a future recovery.

First of all, Alibaba themselves are expected to bounce back in their revenue growth next year by a double-digit percentage. And on the bigger scale of things, it seems that China is finally becoming aware of just how much damage they've been causing themselves, which may result in them backing off a little and providing some much-needed relief.

In recent months, China has released statements saying that they will start implementing more market-friendly policies backing off on tech companies that they've been very strict on.

And they've even addressed the delisting concerns from the US government banning Chinese stocks because of a lack of transparency, saying that they're continuously holding meetings with the US in order to reach new agreements, and that will ideally prevent future delistings.

Despite all of this progress, though, Alibaba continues to trade even lower than where it did at the start of the pandemic, when the entire market was crashing. And again, it's even significantly lower than where it was five entire years ago, in my opinion, I just don't think you can keep a company as massive and dominant and still growing like this down at these levels.

As if they haven't even grown their business at all over that time when we know that that's clearly not the case, as they have not only broken new record highs in sales, but they're also a cash-generating machine on the bottom line, doing over 150 billion yuan in 2020 alone. 

And while last year was a decline, because of all the issues that we've talked about. Once things do eventually rebound, this is not only going to be a hugely profitable company again, but that valuation is also going to get even more attractive when the profits start surging again and balance it out. 

Analysts seem to be catching on to this rebound potential considering that out of 48. Analysts on Yahoo Finance, not a single one of them holds a sell or even an underperforming rating.

And literally only one of them has a hold rating. So everyone is pretty much in agreement that at these incredibly low levels. Alibaba stock is either a buy or a strong buy and myself included, of course. 

#5. Number

The fifth and final reason to buy Alibaba stock. And that is the similarities that it has to Amazon. Amazon stock has to face a number of hurdles throughout its life that made for a very volatile stock too.

But over that time, they were able to overcome those obstacles. And I believe that Alibaba shares many of the same characteristics that can propel the stock higher over the long term as well. 

People used to say that Amazon could only go so far because I remember way back in the day, they would say that online shopping would never be large enough, and people will always still want to shop in person. But online shopping has been a skyrocketing trend that will soon reach a quarter of all retail in the entire world. 

They also said that Amazon stock was overvalued. And I remember making tons of videos for years saying that they weren't considering the future potential. And that Amazon stock would eventually be able to reach a $1 trillion market cap and then a $2 trillion market cap. 

And remember, people were laughing and making fun of me for those predictions. But Amazon did eventually reach 1 trillion. And last year, they even came close to reaching 2 trillion as well. In the case of Alibaba, though, their market cap is only around 320 billion, while their enterprise value is even lower, at just around 275 billion. 

And I'm sorry, but when you're talking about the Chinese version of Amazon that operates in an even larger home market, I think that company will have a very real shot of surpassing the $1 trillion dollar market cap, level two, at least over the long term. And finally, people always said that Amazon would struggle with profitability. 

But thanks to their cloud computing segment, especially in Amazon Web Services, Amazon has been able to generate 10s of billions of dollars on the bottom line. And that's despite them investing extremely heavily back into the business, well, Alibaba, they also have a very dominant cloud computing platform. 

And I think over time, that's also going to help them generate some larger profits as well. The issue though, is that all of these things will take some time. And they do require some patience, which is something that investors just don't have a lot of these days. And hey, that's understandable. 

The economy is not in good shape. Right now, it's not easy to actually practice what we preach as long-term investors and actually buy low and sell high. When things are doing so bad when the economy is at risk of going into recession and money is tight. And you see the stock market crashing, you see your own portfolio, falling in value day after day, can be very disheartening.

And it can be difficult to actually go out there and buy stocks when they're low and when they're crashing. And it's difficult to see past that and to see the long-term potential of some of these stocks and even just with Alibaba themselves. I'm not saying that Alibaba stock is a sure bet.

They definitely have a lot of issues and the Chinese Communist government I would consider to be a complete wildcard in terms of how much they can influence a company like this to there are a lot of risk factors involved. And for that reason, I do think that people should limit their exposure to just Chinese stocks in general. 

But, I allow myself to invest less than 10% of my portfolio into foreign stocks. And when looking at foreign stocks, there is no stock out there that I think is more attractive right now than Alibaba. I think they have a ton of future potential. And I'm more than happy to own around 3% or more of my portfolio just in that single stock because I just think it's worth the risk.