Alibaba is a high quality company on its own but when you dig under the surface and see you also get several AI lottery tickets along with it. Things get more interesting.
Hello Victor, I would argue here BABA didn't have a really attractive valuation until about the last 2 years. Before that it was probably overpriced or fairly priced often above a 25x price to FCF.
I think companies that loose favor like BABA though can take a long time to turn around so we may not have seen the last of it chopping sideways. Though things appear to be turning up so we could be starting that change now.
When I look at BABA I see a company starting to turn around and already has the worst priced in. They are buying back massive amounts of stock and still spitting out over $20 billion per year in FCF.
The best time to buy is when something is the most hated because no one believes things will get better. That's what make me a contrarian investor.
Nice call, hopefully you established a nice position.
It was the largest position in my portfolio at over 30%.
Why do you think commentators have said BABA’s current valuation is an enticing bargain for the last 5 years, and yet, have been wrong?
Hello Victor, I would argue here BABA didn't have a really attractive valuation until about the last 2 years. Before that it was probably overpriced or fairly priced often above a 25x price to FCF.
I think companies that loose favor like BABA though can take a long time to turn around so we may not have seen the last of it chopping sideways. Though things appear to be turning up so we could be starting that change now.
Massive CCP risk plus soft fundamentals give me pause:
- 37% gross margins, 7% net margins, 7% ROIC
- Negative 13.5% total returns since inception
- 9.5% revenue growth last 3 years
- Negative 17% EPS growth last 3 years
- Last 5-years average P/CF: 11.7x, current P/CF: 8.6x
It certainly has risks no doubt.
When I look at BABA I see a company starting to turn around and already has the worst priced in. They are buying back massive amounts of stock and still spitting out over $20 billion per year in FCF.
The best time to buy is when something is the most hated because no one believes things will get better. That's what make me a contrarian investor.