Value investing and long term holding might not be synonimum with wallstreetbets, but I don’t care, because I want to get this stock as much attention as I can now that I hold it.
Alibaba is currently worth $570B or $210 per share and recently its price dropped after it missed profits in Q1, Jack Ma was lost and the news of the fine broke out. Plus, many people don’t trust it because it’s chinese, or because of its legal profit funnelling scheme through the Caymans, or simply becaus ethey hate the CCP. But this company has long term prospects that are stellar and financials to die for. Arguably, all the fear might be temporary , and during the last quarter, a lot of successful value investors like Charlie Munger have bought it around the 20-230$ zone. It’s sure that it’ll encounter competition in the future, but network effects are strong, and you have to understand that Alibaba not only is the ecommerce leader in some of the biggest emerging markets, but it is also the backbone on which the entire ecommerce sector relies. All the crap that you buy off Amazon is rebranded shit from Alibaba sold at a huge markup, and people have started to realize it.
A 10 year and 20 year DCF intrinsic value analysis
Assumptions: Starting FCF is the one from 2019, so we just out of caution we are not considering the ecommerce boom during the pandemic. The assumptions on FCF growth are based on forecasted CAGR for the ecommerce and the cloud businesses ove rthe next five years, weighted considering how much these sector weigh on Alibaba’s revenue. After five years, the growth rates starts to decrese in my model. Terminal value is just $100B out of caution again, I chose this figure based on net cash and tangible assets on the balance sheet, it would likely be much higher. I assume no payout since they currently don’t do any, but it shouldn’t impact teh valuation massively. The discount rate is 3.63% which corresponds to the current 30 year yield on Chinese government bonds.
10 year DCF value: roughly $1T or $367 per share
20 year DCF value: roughly $2.2T or $809 per share
As you can see the margin of safety of this play is very large and there is potential for a multibagger in the long run. The forecasted 10 year return looks like it’s going to be double the one of the FAANG stocks
Some technical analysis
Don’t think I need to say anything here. It’s pretty obvious that there could be a very sharp rebound from the trendline soon enough
Advice: don’t play this short term or you’ll get bruned, markets can stay irrational for a long time. Just hold shares, maybe with 2:1 leverage if you are brave. If you need to play options, go LEAPS for this one and it might make you a lot of money. Also: diverisify like an adult, China or the world could still implode tomorrow.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.