Alibaba shares were dragged by immense volatility in the Chinese stock market recently. However, the stock market volatility in China is not going to affect Alibaba’s growth, said Wedbush Securities analyst Gil Luria in a research note. China has a much lower stock market participation of retail investors compared to the United States. So, the research firm believes the stock market volatility will have only a limited “wealth effect” impact on Chinese consumers.
Investor sentiment will turn positive after Q1 results
What’s more, Wedbush Securities said Alibaba stands to benefit as Chinese economy shifts from investments to consumption. Alibaba is scheduled to report its fiscal first quarter (April-June) 2016 results on Wednesday, August 12 before the market opens. Analysts on average expect the e-commerce giant to report 59 cents in EPS. Alibaba’s revenue is expected to jump 33.70% to $3.40 billion.
Gil Luria said the Hangzhou-based company will handily exceed the Wall Street consensus estimates. The Wedbush analyst said Alibaba is a unique combination of size, growth, and profitability. Investor sentiment will swing back to positive after the company reports strong Q1 results and issues an upbeat guidance next month. Wedbush has an Outperform rating on the stock with $115 price target. The price objective reflects about 37% upside from current levels.
Is Alibaba more attractive than Facebook?
The research firm expects Alibaba to report $3.36 billion in Q1 revenue. However, it has revised the Q1 2016 EPS estimate from $0.80 to $0.62. Wedbush Securities said the new estimate reflects the reduction in take rate from Juhuasuan and the loss of lottery business. Alibaba suspended lottery sales in February due to pressure from industry regulators. The research firm’s revised EPS estimate is still above the consensus estimate of $0.59 per share.
Gil Luria said the Chinese online retailer’s valuations now compare favorably with its comparables. For instance, Alibaba is trading at 15 turn discount to Facebook even though both companies enjoy similar growth and profitability. Alibaba is also expanding its business in international markets such as India and Russia to maintain growth.
Alibaba shares fell 0.27% to $83.92 at 12:43 PM EDT on Thursday.