Recent market fluctuations have seen Alibaba Group Holding Ltd (BABA, Financial) experience a significant daily loss of -9.14%, alongside a 3-month decline of -11.19%. Despite these market jitters, the company has maintained an Earnings Per Share (EPS) of 4.62. A critical question arises for investors: is Alibaba Group Holding significantly undervalued? This article delves into a comprehensive valuation analysis to uncover the answer, inviting readers to explore the intricate details of Alibaba Group Holding's financial landscape.
Company Introduction
Alibaba Group Holding Ltd (BABA, Financial) stands as the world's largest online and mobile commerce entity by gross merchandise volume, boasting a diverse portfolio that includes China's leading online marketplaces Taobao and Tmall. With a revenue breakdown heavily weighted towards its China commerce retail division, Alibaba Group Holding's financial performance is a critical indicator of its market valuation. The juxtaposition of the company's stock price against the GF Value—an estimate of fair value—offers a gateway to understanding the company's intrinsic worth.
Summarize GF Value
The GF Value is a unique valuation metric that encapsulates the intrinsic value of a stock, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and projections of future business operations. Alibaba Group Holding (BABA, Financial) is currently positioned as significantly undervalued according to the GF Value, with a market cap of $201.50 billion and a stock price of $79.11, well below the GF Value of $123.86. This disparity suggests a potential for higher long-term returns, based on the premise that the stock will gravitate towards its fair value over time.
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Financial Strength
Assessing a company's financial strength is paramount to avoid capital loss. Alibaba Group Holding's cash-to-debt ratio of 3.29 outperforms 80.81% of its industry peers, reflecting a robust financial standing. With a financial strength rating of 7 out of 10, the company's balance sheet is deemed fair, indicating a sound position for potential investment.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment, and Alibaba Group Holding's decade-long profitability streak is a testament to its financial health. With an impressive operating margin of 13.62%, the company stands well above the majority of its industry counterparts. A strong profitability rank of 9 out of 10 reinforces Alibaba Group Holding's allure for investors.
However, growth is equally crucial for valuation. Alibaba Group Holding's average annual revenue growth rate of 20.6% is commendable, yet its 3-year average EBITDA growth has been less stellar. This mixed growth performance warrants careful consideration when evaluating the company's long-term value creation potential.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) is a robust measure of profitability. Alibaba Group Holding's ROIC of 8.67 surpasses its WACC of 7.59, indicating the company's effective capital allocation and value creation for shareholders.
Conclusion
In summary, Alibaba Group Holding (BABA, Financial) presents as significantly undervalued in the current market. The company's financial condition is stable, and its profitability is robust, although its growth metrics present a more nuanced picture. For a deeper dive into Alibaba Group Holding's financials, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
