With market chatter surrounding Jack Ma and Alibaba near its peak, we penned a piece in late 2014 that examined the performance of $10+ billion U.S.-listed IPOs out the gate. The limited history at our disposal led us to conclude that investors should wait a year before taking the plunge and buying shares of $BABA.
17 months later we pat ourselves on the back, as $BABA was more than halved from its post-IPO peak to its October 2015 trough. But not only were we right about the likely direction of $BABA’s price, our admonition to ‘wait a year’ also proved quite prescient, as Alibaba’s all-time low water mark was formed one year and two weeks after we published our note.
Today we view $BABA with great interest, as our medium-term timing indicator suggests upside potential over the next few months. Our longer-term gauge is likewise fairly close to bottoming. Thus, we believe, at the very least, current prices represent a solid trading opportunity. However, we are alert to the potential that the coming bounce may well morph into a more enduring (i.e. year-long) advance.
Stretched daily momentum (not pictured above) offers a low-conviction indication that Alibaba might be due for a short-term pause before building on the 25% run-up off the early-February low. We recommend inclined parties use any near-term weakness that might materialize over the next couple of weeks to establish and/or shore up long positions.
$BABA is scheduled to report 4Q16 earnings on May 5. A better than expected report would mark the third consecutive beat for the company, and would add credence to the notion that Ali Baba’s darkest days might be behind them (for a while, anyway).
Further, according to Zacks, the aggregate broker recommendation for $BABA appears to be firming. A beat next month might also catalyze upgrades from sell-side research (and stoke investor interest in the name).
As weekly momentum appears set to improve into late May, we expect $BABA’s earnings report will indeed elicit the approval of stock market participants.