Alibaba Group investors strongly believe that its potential exceeds the sum total of its critics, and its parts exceed the current stock price. MKM Partners recently valued Alibaba’s disparate pieces and concluded that the Chinese Internet retailer’s stock was worth $130 per share, according to Barron’s.
Worth more than the market price
Alibaba shares are trading at around $95.
“Declaring a stock is mispriced by 35% or more may seem like a hustle at a time when Wall Street is desperate for business, but such skepticism is misplaced,” says Barron’s.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
Sum-of-the-parts valuations are often helpful reminders of a company’s potential when investors face trouble understanding the business. Alibaba, which has just began to better explain itself to investors, has always been considered a company that is “hard-to-fathom,” says Barron’s.
Rob Sanderson of MKM broke the business into its many components for his valuation. Alibaba’s e-commerce business was found to be worth $94 a share — almost equal to the current stock price, while its cloud computing business was determined to be worth $18 per share.
MKM states that Ant Financial — an online payment processor and bank that is sometimes compared to PayPal — adds $8 per share to Alibaba’s worth. Alibaba owns 33% of the company. Many expect Ant, which has recently been valued at around $60 billion, to go public in the first half of 2017.
According to Sanderson, the mark-to-market value of the publicly-traded companies in Alibaba’s portfolio has been valued at around $13 billion, making up $5 per share if its valuation. Another $5 per share is added to MKM’s valuation by digital media and cash.
Alibaba among the best long-term picks
Alibaba’s stock is touching new heights fueled by excellent quarterly earnings and the Street’s optimism. The stock is one of the best picks in the e-commerce industry. The company’s financial performance has been quite impressive, and it also has a promising future in cloud computing.
Alibaba’s stock is unique because it entered new segments and has a different perception of e-commerce, states The Country Caller. Jack Ma made a move into e-sports and aligned VR with e-commerce, making it easier for customers to make choices.
Wall Street has been highly optimistic on the stock even before its earnings. Morgan Stanley analysts see the Beijing-based retailer as one of the best picks for long-term returns.
On Monday, Alibaba closed down 0.19% at $94.88. Year to date, the stock is up more than 16%, while in the last year, it is up more than 35%. The stock has a 52-week high of $98.86 and a 52-week low of $57.20.