After being one of the best-performing mega-cap stocks in the market throughout most of the year, Alibaba Group Holding Ltd (NYSE: BABA) stock is down 4.5 percent in the past month. MKM Partners analyst Rob Sanderson says there are three reasons why Alibaba shares have slumped, and investors should ignore all of them and buy BABA anyways.
According to Sanderson, a large part of Alibaba’s recent weakness can be attributed to sector rotation out of technology stocks. The Technology Select Sector SPDR Fund (XLK) has been left out of the broad market rally, trading mostly sideways since late November.
In addition to sector rotation, Sanderson says weakness in the Chinese market, particularly in internet stocks, has dragged down Alibaba. The MSCI China Index is down 1.2 percent the past month, and Sanderson says stocks of Alibaba’s large-cap internet peers have been hit even harder.
The third reason Sanderson says BABA stock is lagging the market is thanks to disappointing e-commerce sales numbers from the National Bureau of Statistics of China. The NBS reported that online sales growth in China decelerated from 35 percent in October to 32 percent in November.
Sanderson says Alibaba’s company-specific numbers still look just fine, even if the volatile NBS number suggests a softening e-commerce environment. He says Alibaba’s Tmall is gaining market share from its largest competitor, JD.com (JD). Alibaba reported 39 percent year-over-year growth in Single’s Day sales in November, which MKM estimates accounted for up to 30 percent of total November online sales in China.
Sanderson says more of Alibaba’s impressive revenue growth in 2017 is coming from monetization gains rather than sales volume gains.
“We see ample opportunity for monetization improvements to drive growth for several years,” Sanderson says.
He says MKM analysts “continue to view fundamentals for BABA [as] the best among the mega-cap internet stocks.”
Sanderson’s comments come just days after Stifel analyst Scott Devitt said both Alibabaand JD are well-positioned to capitalize on a huge long-term growth opportunity in the Chinese e-commerce market.
“Alibaba and JD.com have both achieved…
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