Alibaba: What Do You Do On Day 2?

By Shane Leonard on Sep 22, 2014

Summary

  • Few retail investor got shares in Alibaba at the IPO price of $68.
  • Instead they faced a price of over $90.
  • At 40x Earnings and Growth forecasts of 29%, Alibaba is not one for me.
  • Nor for the Wall Street consensus with a target price of $88.
  • And if I owned Yahoo! stock, I’d be fuming!

After the IPO

The IPO was a roaring success for Alibaba and its investment banks. But now that the headlines have passed and the first day’s trading is closed, what does a retail guy, like me do?

Let’s look at the analysis.

Firstly, on valuation, it isn’t cheap.

Forward PE ratio

Secondly, on fundamentals, growth in earnings, isn’t any better than its competitors.

Long-Term Earnings Growth

Thirdly, the 2 brokers that have published research, pre-IPO, have a price target below the 1st day’s close.

Brokers' Consensus Target Price

Though they clearly were fans at the IPO price of $68.

Finally, when it comes to technicals, one last word of warning, read about the lock-up agreement in the SEC filing by Alibaba: * Alibaba sold 368m shares * Most of the old shareholders agreed to sign the lock-up * But some, with 128m shares didn’t * Will they now hit the market in an uncontrolled way? One to watch

So what’s my conclusion?

At first glance, I’m not interested in chasing this IPO.

Any other business?

Separately, though not relevant to Alibaba, I’d be fuming if I owned Yahoo! stock. They sold 140m shares only to see the price rise 38% on day 1. Transferring $3bn from Yahoo! stockholders to the IPO buyers. Nice.

In contrast, Softbank didn’t sell a single share!

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in YHOO over the next 72 hours.

Please drop me a message @shaneleonard121 or message our full team @stockflare.

Shane Leonard, CFA

CEO

Stockflare