How High Will Alibaba Stock Go In 2016

How High Will Alibaba Stock Go In 2016How high will Alibaba stock go in 2016 is a question many people want an answer to.  (BABA $74.00) That is the million dollar question right now. (Or is it Trillion with a capital T…we are talking about over a billion people aren’t we?) The investors of the world are drooling all over each other in the hopes off making massive amounts of money off of this company. There are many examples to look at in order to see what we should expect from this hyped up stock, but which way will it go?  Is it going to be another Facebook like stock or a Circuit City type stock or just something in the middle?

In trying to figure out the answer to how high will Alibaba stock go in 2016, one needs to look at the financials first and all of the speculation second.  This company’s recent IPO pointed out just how much this company is valued in the world’s eye.  Anyone that follows my reviews knows how I like to value companies.  One of the best statistics to look at is the price to earnings ratio.  The PE gives us a great idea of where the stock price should be over the next few years.  I usually will only buy stocks that have PE ratios under 15 and this stock came out at about 2.5 times higher than that.  Back then, that told me that it was way overpriced and either had to massively increased sales or have its stock price drop to get close to that magical PE of 15.  Since its IPO, BABA has gone from a high of $115.10 a share, down to its current $74.00 a share.  This also affect of changing Alibaba’s price to earnings ratio to a more reasonable 17.93.  A little higher than the 15 I shoot for, but it is a major Chinese tech play, so it can be off a percentage or two.  The ultimate question comes down to, is it worth it?

Taking a look at what Alibaba closed at on Friday, you will see it trading at $74.00 a share.  This is already 20% plus lower than its opening day trading price.  Alibaba has expected earnings of $2.75 for the full year 2015.  This gives it a price to earnings ratio of about 26.  If we go to forward earnings of 2016 into 2017, they are expecting to earn about $3.48 a share.  Based on today’s price, you are looking at a PE of 21.  Now based on that, we know that the forward PE for 2017 is not that bad for today’s price, but still a little high in the PE column.   But, is it a good investment based on past IPO’s of a similar nature?  There are a few ways to try to figure that answer out.  By reviewing these “other” stocks, we will be able to see how high will Alibaba stock go in 2016 and beyond.

The first way to try to figure where this stock is going is to look at some other big name IPOs to hit the street over the last decade.  I definitely remember when Google had its IPO and everyone said that it was way overpriced and would never reach the levels some speculators were predicting.  Let’s take a look at that IPO as a beginning comparison.  I still remember it opening at about $85 a share and closing that day at around $100 a share.  The idea of the stock making to much of a move was out of the question back then.  But fast forward to today’s market and it looks like a steal of the grandest proportions.  But that is not the point of looking at Google during this IPO period.  It was trading with a price to earnings ratio of 40.  This is important when considering if Alibaba is overpriced.  Now that we have a benchmark PE of a similar IPO of 40, we can see how Alibaba is comparing to Google back in 2004.  Alibaba currently has a PE of about 38 which is right inline with Google’s 40 during its IPO.  The growth rates are also very similar if we try to compare them based on their IPOs.  So using these metrics, we would be able to say that Alibaba is not overpriced and that there is some serious gains to be had going forward.  We watched Google double its stock price during the next year.  Will Alibaba do the same?  I don’t know for sure, but this will definitely help in answering the question of how high will Alibaba stock go in 2016.

When you are thinking of one of China’s hottest tech stocks, it is hard not to compare them to Facebook.  So let’s take a look at Facebook and their IPO and see how they compare.  We all remember that week in 2012.  Facebook came out and absolutely did nothing to wow us.  It was priced at $38 a share and may of hit $41 that week before ultimately dropping down to the mid-teens within a few months.  It was considered way overpriced.  I even have a recent article that discusses this stock in detail going forward here.  During Facebook’s IPO, it was going to be sold between $34 and $38 a share, which we all now know now, that it hit the higher end of that spectrum.  There were so many questions with the stock that remained unanswered, that it finally had that big selloff many naysayers predicted.  The price dropped very quickly down to very low teen levels.  But what was Facebook’s price to earnings ratio back then?  It had earnings of only 52 cents per share price of $38, giving it a PE of 73.  This is much higher than what Alibaba’s PE is and even higher than Google’s PE during its IPO and one of the main reasons I think that it did so poorly after its IPO.  What happened next to Facebook’s stock price?  Well, it ended up rebounding significantly  over the  last two years and now the price has almost tripled to $109.42 a share on growth of their advertising network.  I would say that tripling your money in 4 years is not a bad investment.  But how high will Alibaba stock go in 2016 and beyond?

So two different technology stocks above that “went there and did that” with their own initial public offerings.  We may not know everything we would like about Alibaba, but we can look at some of the information from above to judge how this stock is probably going to go as we advance into the future.  I like to think that we can learn from the past and use that information for making better investing moves into the future.  The idea is that many people are absolutely afraid to invest in this company, much like they were back when Google went public.  Even Facebook was able to increase their earnings for 2016 to about 5 times of what they were back in 2012.  As more of the world starts to use Alibaba, their earnings will no doubt increase to higher levels, thus pushing the stock price higher.  Not to get away from the PE of Facebook, we can see that as of today, it is about 85.  This is very high, but not unusual for a fast growing tech company.  Google is trading with a PE of about 32 right now.  So our Alibaba stock is lower than both of these tech companies.  The funny thing is that Alibaba is larger than both of them.  Is this a sign of times to come for Alibaba or are we just hoping?  It helps to clarify how high will Alibaba stock will go in 2016.

We all know that China is exploding in wealth.  The number of millionaires in that country has risen by 82% to over 2.3 million.  The United States has around 7 million citizens that are worth over a million dollars.  But the growth rate in China is crazy high.  They will eventually over take the United States in the next few years when it comes to having more millionaires.  With all this money and that huge growth rate, you can fully expect to see this stock go higher.  The one thing that does make me a little nervous is that big jump during the first day of trading.  Is it going to be like Facebook and lose half of its value or will it be more like Google and continue higher right out of the gate and never look back?  Based on what I have researched, Alibaba is the real deal and the following will discuss why.  It should help answer the question of how high will Alibaba stock go in 2016?

Here are some interesting facts that will help you decide for yourselves if Alibaba will grow into a monster of a company.  Alibaba does the majority of its business in China in the for of online commerce.  Think of an Amazon like company, just much larger.  It has been said that Alibaba is basically Amazon and Ebay rolled into one.  The sad or good thing about Alibaba, depending who you talk to, is that it does almost all of their business in China exclusively.  This means that if they even did go global, you could see huge revenue gains going forward.  China has increased its internet usage among its citizens to over 600,000,000.  It is growing at a rate of about 10% a year as well.  So give it about 6 years and you will  have about a cool billion people in China using the internet.  This would also mean that Alibaba would have a great chance to also double its user base by then as well.  Can you see where I am going with this.  China is the world’s fastest growing economy and it is only going to get bigger. You can see from the chart below that Alibaba’s revenue has gone up by massive amounts in only a few years.  This is a strong statement of things to come.

How High Will Alibaba Stock Go In 2016

How high will Alibaba stock go in 2016?  Based on the above chart, it looks to be revenue of about 80 billion yuan.  The light blue is Chinese commerce and the dark blue is international commerce.  The growth of Chinese commerce is light a missile, going just about straight up.

Ask yourself this question.  Do you have any tech stocks in your portfolio right now?  The answer is most likely yes if you are properly diversifying.  Now let’s take a bigger look at diversification.  How many Chinese stocks do you have in your portfolio?  The answer is probably zero if you are like the average American investor.  I am here to let you know that you should be looking at foreign companies as a way to completely diversify and as well as a way to increase your overall return rate.  So now you have an opportunity to invest in a pretty solid growth stock out of China, do you take it?  I personally am battling that question right now and as the writing of the writing of this article, I do not own any share of Alibaba as of yet.  But I can tell you that I am strongly leaning towards purchasing some just as a means to further globalize my stock portfolio.  Every country has their own ups and downs.  It is my job as an investor to try to maximize my profits by taking advantage of these fluctuations.  I am recommending Alibaba from China as a good foreign tech stock to add to your holdings.  I don’t do this because I think that U.S. stocks are bad, I do it because we should all want to diversify our holdings to include foreign stocks and this company has some huge potential to make us some serious money going forward.  This write up is all about how high will Alibaba stock go in 2016.

Now we have quite a bit of information up above that will help you decide if Alibaba is worthy of your investment dollars.  I am going to further expand on what they do in order to give you a better idea of where their revenue growth will come from.  Alibaba gets most of its income through 3 main websites over in China.  The first is Taobao, which is China’s largest shopping website.  I like to think of this part of Alibaba’s structure as the Amazon part.  And if we do look at it as this, which many of the professional researchers do, then we can kind of look at Amazon for details on how high will Alibaba stock go in 2016.  Let’s look at 9 years ago when Amazon was trading at $33 a share.  It went on to increase to its current price of $$569.61 a share.  That is 17x the price of under a decade ago.  So an initial investment of $10,000 will now be worth over $170,000 in just about 10 years.  Can Alibaba see such results?  I absolutely feel like they have a better chance of succeeding then Amazon does just because of the amount of users it will have over the next 9 years.  It could be in the billions!  This makes figuring out how high will Alibaba stock go in 2016 an easier question to answer.  It will be higher than we are now, barring a global financial meltdown.

The next part of Alibaba’s business structure is Tmall, which caters to the rapidly growing middle class of China.  They are actually expanding compared to the decline of the U.S. middle class.  They typically sell a ton of name brand goods.  I would think of this site as more of an online mall of top brand names.  They control this market in China and are consistently growing year after year.  This is an important part of the business due to the fact that it is catering to that rapidly growing middle class.  How high will Alibaba stock go in 2016?  Pretty high with Tmall growing like a weed as well.

The last part of Alibaba’s business structure is the website.  This takes all the exporters of China and helps them to connect with the rest of the world.  This is always expanding as well due to the world trying to get into China’s business structure.

Now if that wasn’t enough, Alibaba also has a Paypal like company that is called Alipay.  It also owns the Sina Weibo, which is much like our own Twitter here in the states.  Then on top of all that, they own the Youtube like site Youku Tudou, which is also rapidly growing.  It has lately bought an interest in the Chinese football industry, as it purchased half of Guangzhou Evergrande. If all the aforementioned wasn’t enough, they also recently purchased half of a film company.  My guess is that they will also be able to now buy any companies that look to be the next big hit in China with the money they raised from their IPO.  Since they are Chinese, they will be able to buy the companies.  Sounds weird, I know.  But, foreigners are not allowed to buy Chinese companies.   In buying the Alibaba stock, we actually don’t own Alibaba stock at all.  Chinese law forbids foreigners from owning Internet businesses in China.  So what do we own then?  What we do own instead of Alibaba stock is a Variable Interest Entity or VIE for short.  This Variable Interest Entity of Alibaba means that we are entitled to some of the profits of the company and that is it.  We have no say in how it is run and cannot do anything else accept take profits.  Now this may be a little bit worrisome, but it is what needs to be done in order to invest in a Chinese company like this.  How high will Alibaba stock go in 2016?  I am pushing for a stock price of between $90 to $100 a share.

So let’s sum up my final thoughts on this stock and how to invest in it.  I do consider myself a value investor and I try to avoid stocks that have price to earnings ratios above 15.  But with that being said, I invested in the Facebook IPO and made a ton of cash on that stock over the last few years.  You know what that got me?  Almost tripled my initial investment in a few years.  I would of did that with Google in a little over a year if I invested in that IPO as well.  What is my point here?  Well, I have witnessed 2 very like IPOs in the last decade and both have returned huge amounts of money to the stockholders that bought in during the IPO or shortly after that.  Sure, there were some ups and downs with Facebook, but in the end, they just about tripled my money.  If you can’t tell, I am long on this stock and see some positive stock gains coming in the next few quarters.  I fully feel that they will continue to take advantage of their capital to increase their earnings to even higher levels.  I think they are basically a Facebook like company that will eventually will double their stock price and then never look back.  How high will Alibaba stock go in 2016?  Well I believe they have the potential to double, but it will take a little help from their government.  Without that help, they will probably double in the next 2-3 years.  So there you go, another winner from your own personal stock guru…Stock Moe. :)

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