AliExpress – Should You Include This Stock In Your Portfolio?
AliExpress is an emerging online ecommerce website, developed as an English language variant of the successful platforms by Chinese firm Alibaba. For investors who missed out on the opportunity to invest in Alibaba following its IPO last year, now could be a good time to buy into the retailer’s stock. There are many reasons to be optimistic about the company’s future performance, which would explain why speculators who use Banc De Binary market analysis still feel that they should include the stock in their portfolios, despite it taking a 30% hit to trade at about $84 a share, from the highs hit shortly after the company’s initial public offering.
Long-Term Focus
What prospective investors need to look at are some of the points in this article, which would seem to indicate that despite much of the recent ‘bad’ news regarding Alibaba and its subsidiary AliExpress, there is a silver lining. The lower ratings given to Alibaba due to its current performance have had the effect of shaking out the crowd that follows a stock’s momentum; these are investors whose major concern is about short-term activity over the company’s strong fundamentals, which are more important to investors in it for the long haul.
The way investors make money through founder-managed companies, which are dominant players in their respective sectors, is by placing more emphasis on good-looking longer-term trends, regardless of pullbacks, and by observing macro trends. At some point, companies like Alibaba will stumble in the short term, but will eventually win out due to their long term movements.
Why Speculators Are Taking a New Interest in Alibaba
If speculative investors were impressed by the performance of Alibaba’s (BABA) stock in 2014, they will love it even more now. This is because the giant online retailer’s stock has dropped by nearly 13% from its closing price on its first publicly traded day. This is a clear reversal from the post-IPO hype. Its initial public offering was completely chaotic, since many investors felt that they should buy the company’s stock, despite not even knowing what Alibaba’s business entailed.
The result of this scramble for Alibaba was that the company’s stock price jumped by a massive 38% upon its release to close the day at $93.89. This meant that investors who bought the stock early on the first day of public trading were able to enjoy an incredible 28% return on their investment. However, after the market settled and all the hype died down, the momentum gained initially, has worn off. In fact, Alibaba shares have been on the slide all year, with stock down as much as 32% from their initial high closing and the share price now stands at about $75.77. This can be attributed to investor concerns about the questions being asked by Chinese regulatory authorities and also due to worries about the integrity of the ordering system used by AliExpress and sister brands.
In spite of all this, many analysts have maintained a bullish outlook on the stock. This is because of an expected 28% increase in the company’s adjusted earnings for 2015, as well as analysts’ projection of a rise in the share price to about $110 over the next 12 to 18 months. If the projections prove to be correct, investors in Alibaba stock can expect to enjoy a potential upside of up to 34%. Regardless of the analysis, Alibaba stock should still be considered a speculator’s market. This is because the stock is being traded at nearly 50 times the level of its diluted earnings for the last 12 months. This type of valuation is a relatively risky proposition that, though potentially profitable, leaves little room for error in case the company’s growth slows down.
China’s Retail Market Is Growing and AliExpress / Alibaba Is the Major Player
Many more people are joining the rapidly expanding Chinese middle class. This has resulted in a robust retail spending growth rate of between 10% to 12% year on year. On the other hand, when compared with other countries with this type of growth in spending, China has a limited number of retail outlets. This is a definite plus for innovative ecommerce businesses such as those owned by Alibaba, which are growing at a much faster rate than traditional retail stores.
According to Kevin Carter, an analyst with Big Tree Capital, the billions of people in China do not have access to major retail stores such as Wal-Mart, but have access to internet-enabled cell phones which allow for easy access to ecommerce websites.
Alibaba’s Tmall.com, Aliexpress.com and Taobao online marketplace are websites that are the dominant players in their respective market segments. Although global online retail giants Amazon and eBay have attempted forays into the lucrative Chinese market, they have made little headway. What is even more interesting is that, instead of setting up an independent operation in China, Amazon has set up its store on the Tmall.com platform. More than 80% of consumer goods purchased by the Chinese on their mobile phones are actually bought on the platforms set up by Alibaba Group.
Alibaba andAliExpress Are Expected To Grow Phenomenally
The growth of Alibaba’s ecommerce platforms has been phenomenal, with estimates indicating that sales rose by an incredible 49% over the last quarter when compared with the previous year, with sequential growth standing at 42%. Revenues were also on an uptrend, with 40% growth over the previous year, with 56% sequential growth. There are few companies in existence that have displayed this kind of growth over such a short period of time.
The number of people shopping on AliExpress and its associated retail platforms has also risen by 45% over the previous year to stand at a mammoth 334 million shoppers. This only represents half of the people who shop online in China, and is only a quarter of the entire nation’s population. This means that there are still massive opportunities for growth within this market, not to mention the non-Chinese markets.
The Company Is Managed By Its Founders
Investors in the stock market are always drawn to companies that are run by their founders. This is because many studies indicate that such companies often outperform expectations due to the existence of an entrepreneurial spirit even when the companies experience phenomenal success. This drive is an aspect that helps founder-managed companies to succeed compared to firms that are run by employed professional managers. This has certainly proved true for companies such as Facebook, Amazon and Google. By holding major leadership positions on Alibaba’s board, the company’s co-founders, Joseph Tsai and Jack Ma, are able to continue running the company on its founding principles.
The Final Word
In several fundamental ways, owning a slice of the action in Alibaba is very different from investing in a typical American firm. This is because this type of investment requires far more trust in the company’s internal operational structures and its board than in the regulatory regime. However, as the rush for the company’s IPO clearly indicates, pension schemes, mutual funds and hedge funds have a lot of faith in the eventual success of the company. During this time, when major economies are struggling and few large companies are showing signs of strong growth, Alibaba and its subsidiaries like AliExpress stand out as beacons of hope for investors.
The timing of Alibaba’s initial offering was perfect too; according to China’s Internet Network Information Centre, the country is set to see the number of people accessing the internet grow to 800 million users before the end of 2016. The company started its operations in 1999, but truly got into its stride in 2014 with one of the largest initial public offerings in history. The fact that nearly 80% of all ecommerce transactions in China were conducted on Alibaba’s platforms set the stage for the company’s impressive growth figures and the success of the IPO.
The continued growth of Alibaba’s figures should continue for a few years yet, as a growing number of people continue to sign up to AliExpress and Alibaba’s other trading platforms. This would make Alibaba stock one of the greatest wealth creation opportunities for stock traders across the globe.
