Alibaba Group Holding Ltd (BABA)

[FutureBankruptcy]

Why Alibaba Is A 'Strong Buy'
https://seekingalpha.com/article/4086954-alibaba-strong-buy



Summary

Alibaba has a competitive moat and is a cash machine.

The company is severely undervalued when compared to eBay and Amazon.

However, there is a decent risk in the company's corporate structure. Thus, we recommend allocating a small percentage of your portfolio to this stock.

Alibaba (BABA) is one of the world's fastest growing companies. Not only it has a strong competitive moat, which is scale and a strong ecosystem, Alibaba is a cash machine. However, its stock price is not reflecting the company's real position.

We believe that BABA stock is strongly undervalued and a comparison with both; eBay (EBAY) and Amazon (AMZN), proves that. It's worth noting that both of these comparisons are based on the idea that a company which has a higher growth rate and a higher FCF margin shouldn't be valued less on a price to FCF basis.

Alibaba is undervalued when compared to eBay

Both, Alibaba and eBay, share a similar business model as they connect buyers and sellers directly without requiring in-house storage of the products exchanged. This enables both companies to generate a decent amount of cash flow. But, the market is valuing eBay's free cash flows just 41% cheaper than Alibaba's free cash flow valuation, while in fact, Alibaba's growth is 13x higher than that of eBay's.

But, the market is valuing eBay's free cash flows just 41% cheaper than Alibaba, while in fact, Alibaba's growth is 13x higher than that of eBay.

BABA Free Cash Flow (TTM) data by YCharts

And, not only is Alibaba's growth much-much higher, its TTM free cash flow margin is almost double that of eBay. This means, for every $1 of added revenue, Alibaba generated double the amount in FCF that eBay generated (24.7% vs. 43%).

$BABA