Alibaba (BABA) Stock May Be Reasonable Following Cloud Expansion News

Alibaba Group Holding has seen a sharp reset in sentiment over the past year, and the question now is whether the current share price lines up with what its earnings can support. For anyone looking at Alibaba today, the key issue is how that recent share price experience interacts with the business it represents.

• Over the past 12 months the stock has fallen 40.3%, which puts fresh focus on whether the current valuation still matches what Alibaba's earnings profile may justify.
• Alibaba's heavy push into cloud computing and AI infrastructure, including large capital commitments and new data center plans, can influence how investors think about future profitability and the timing of cash flows that underpin an earnings based valuation.
• Your read on Alibaba Group Holding is one view; the desks covering it have another. See what analysts think Alibaba Group Holding's shares could be worth.

The issue now is whether Alibaba's current share price is appropriately aligned with what its earnings suggest the business is worth.

If you want to test whether Alibaba Group Holding's earnings question is rare or common across the AI build out theme, compare it with 91 AI infrastructure stocks.

Is Alibaba Group Holding Still Cheap on Earnings?

The P/E ratio is a relevant metric for Alibaba Group Holding because earnings continue to anchor how many investors assess the value of its mix of e commerce, cloud and AI operations.

Alibaba trades on a P/E of 25.2x, which is below the peer average of 29.2x but above the Multiline Retail sector on 18.0x. On this measure, the stock changes hands at a premium to the broader industry but at a discount to closer peers that analysts use for comparison. The Fair Ratio, which reflects what a tailored model suggests for a business with Alibaba's growth profile, margins, scale and risk, stands above the current P/E, so the shares screen as undervalued against that earnings based yardstick.

Because Alibaba recently committed over US$53b to expand its global cloud and AI infrastructure, the current P/E also requires investors to consider how much of that spending is already reflected in expectations for future profitability. The multiple indicates that investors are not paying as much as for similar peers for each dollar of earnings, despite the scale of those long term commitments. Explore the numbers behind Alibaba Group Holding's P/E valuation.

The Alibaba Group Holding Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Alibaba Group Holding pick up where the P/E puzzle leaves off and explain which combinations of future growth, margins and earnings would need to occur for the stock to be worth materially more or materially less than today’s price on the Community page. Each idea presents Alibaba Group Holding's implied fair value as a thesis you can track over time, so you can see how that story holds up as new information comes through.

One of the top community narratives on Alibaba Group Holding: 54% undervalued

"From this perspective, the market appears to assign a relatively modest valuation to Taobao, Tmall, Cainiao, AliExpress, Lazada, Trendyol…"

Discover why this Narrative puts Alibaba Group Holding at 54% undervalued.

One more angle on Alibaba Group Holding that could change your view

Everything so far has focused on what Alibaba Group Holding looks like today, but there is an extra reference point in how professional analysts map out the business several years from now. Explore where analysts expect Alibaba Group Holding to be in a few years.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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