4 Reasons to Consider Buying Alibaba Stock Today

Many investors are missing out on a company that is showing signs of recovery.

If your investment portfolio is similar to everyone else's, you might be on the lookout for a hot stock that hasn't attracted too much attention. Such opportunities are rare in today's thriving market, but they exist. One such prospect is Alibaba Group, a leading e-commerce company from China. The stock has seen a 70% drop from its peak, making it look less appealing at first glance. However, it may actually be a wise choice for your investment strategy.

Reasons to Buy Alibaba Stock

Alibaba's platforms, Tmall and Taobao, dominate about half of the Chinese e-commerce market. The other half is mainly divided between companies like PDD Holdings and JD.com. While Alibaba's online marketplace generates around $60 billion in revenue annually, this accounts for less than half of its total earnings. The remaining revenue comes from various business segments, including a logistics subsidiary called Cainiao and its cloud computing division.

In common with many businesses, Alibaba initially thrived during the pandemic but then faced a decline as the crisis receded. However, the company is showing a resurgence, as evidenced by a 5% year-over-year increase in third-quarter revenue and a nearly 60% rise in net income. This indicates a positive trend that has been developing since early last year.

Although Alibaba seems to be escaping its downturn, several specific reasons make this stock worth considering right now:

1. Growth in Consumer Spending in China

Alibaba's fortunes are significantly tied to China's economy, especially in terms of consumer spending. 2023 was particularly challenging, largely due to the lingering effects of the pandemic. However, current trends are more optimistic. Retail sales have risen consistently for two years, supported by last year's GDP growth of 5.0%. Despite forecasts predicting a modest 3.5% increase in retail spending for 2023, e-commerce sales might see double-digit growth, according to various reports.

2. Clarity in the Company's Vision

For investors tracking Alibaba over the past couple of years, uncertainty has been a recurring theme. In late 2023, the company went back on its plans to spin off its cloud operations, and earlier cancellations concerning its logistics business added to the confusion. Although these decisions may have been correct, the lack of direction left many investors skeptical. Now, after significant management changes and with clearer plans for its key operations, there's more reason to be optimistic about Alibaba's future.

3. Strong Financial Position

Many people do not realize how much a company's debt can affect its overall performance. High debt can reduce available capital for growth opportunities or when navigating difficult periods. Fortunately, Alibaba is in a solid financial situation. The company, valued at around $235 billion, has roughly $28.8 billion in debt but holds nearly twice that amount in cash and liquid assets. Additionally, it generated $14.5 billion in free cash flow last year. Rating agency Fitch has awarded Alibaba's debt a strong A+ rating, indicating that it can manage financial challenges or invest in future growth without risking its stability.

4. Potential in Artificial Intelligence

Alibaba is making strides in the field of artificial intelligence, which partly explains its decision to retain its cloud computing division. After a recent competitor released an efficient AI model, Alibaba introduced its own model, Qwen 2.5-Max, claiming it outperforms its rival. While it remains unclear how well Alibaba will compete in the AI landscape, the long-term potential is promising. Industry forecasts suggest that the AI market could grow at an annual rate of 19% through 2034, presenting a chance for Alibaba's AI initiatives to become a significant driver of future growth.

Maintaining Perspective

Although Alibaba appears to be on a positive path, it still faces challenges such as increasing competition in e-commerce and broader economic issues in China. Shares are currently trading at only 11 times expected earnings for 2025, remaining down 70% from their peak. This suggests that investors may not fully recognize Alibaba's potential. Hence, this stock represents a unique opportunity in today's market. However, it is wise to keep in mind that Alibaba's stock may continue to experience some volatility in the nearby future.

investment, Alibaba, e-commerce