Is Alibaba (BABA) Stock Actually Cheap Right Now?

Alibaba (NYSE:BABA) is much more than an e-commerce marketplace; the Chinese internet behemoth is also a major force in the global retail sector, as well as a budding growth opportunity in industries like financial services, smart vehicles, artificial intelligence, and digital media.

Beyond these segments of Alibaba’s business, the company is perhaps the most recognizable Chinese brand here in the U.S.—especially for investors. BABA is the largest of China’s numerous ADRs, and the stock has emerged as a method for American traders to bet on the state of the Chinese economy.

When taken together, the company’s growth prospects and rising popularity form a unique situation for investors, and that uniqueness has led to an excitement that has helped the stock soar more than 85% over the past year.

Some of that surge has, of course, been caused by rapid earnings and revenue expansion, with the company’s bottom line projected to improve by 49.3% in the current fiscal year—on the back of 65.4% revenue growth.

Nevertheless, Alibaba still feels like a speculative stock. BABA is currently trading with a Forward P/E ratio of 29.2, coming in significantly higher than the broader market average, as well as the 24.7 average of its wholesale retail peers.

But considering how unique Alibaba is, this might not paint a complete picture. Prudent investors are correct to compare the stock to the others around it, but the uniqueness of the situation might also demand special consideration. In other words, investors looking to determine whether Alibaba is “cheap” or “expensive” might be best served by comparing the stock to itself.

With that said, a quick glance at Alibaba’s historical Forward P/E reveals that the stock is actually trading at its “cheapest” point in more than a year:

Alibaba was certainly hammered by the late-January sell-off, but the stock has almost entirely recovered, meaning that the cause of this lower P/E is also strong estimated earnings growth.

On top of the aforementioned 49.3% EPS expansion that Alibaba is expected to report in its current fiscal year, our consensus estimates are calling for the company to witness earnings growth of an additional 33.0% in the upcoming fiscal year, which ends in March 2019. Since we are looking at forward earnings, this is really the growth we want to hone in on.

Looking even further down the line, Alibaba is expected to improve its earnings at an annualized rate of 30.5% over the next three to five years.

This stock might not be cheap in the traditional sense, but investors might have to pay a slight premium for such a unique growth opportunity.

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