Why This Analyst Says Investors Should Buy Alibaba's Recent Weakness

Shares of Alibaba Group Holding Ltd BABA peaked just north of $190 in November but have since fallen $20 per share, prompting at least one Wall Street analyst to encourage investors to buy on the dip.

The Analyst

MKM Partners' Rob Sanderson maintains a Buy rating on Alibaba's stock with an unchanged $220 price target.

The Thesis

Alibaba's stock weakness could be attributed to sector rotation out of large-cap internet stocks, overall weakness in Asian stocks and concerning retail data from China's National Bureau of Statistics that shows a deceleration of online sales of physical goods, Sanderson said in a research report. (See Sanderson's track record here.) 

While the data from China is useful to monitor, it doesn't tell the full story, Sanderson said. The analyst said other factors are important to consider for Alibaba: 

1. The data is volatile but came in in-line with consensus expectations.

2. November was a tougher comp month, but December will ease.

3. Alibaba's accounting of gross merchandise value isn't the same as what the government uses.

4. Alibaba's Tmall is gaining momentum against its rivals.

5. The company reported 39-percent year-over-year growth during Singles Day, which accounted for 25 to 30 percent of the month's total.

6. Monetization gains continue to account for a much larger contribution to revenue growth.

Bottom line, Alibaba's continued monetization improvements, solid consumption trends and momentum heading into strong seasonality supports the bullish case for owning the stock, the analyst said.

Price Action

Shares of Alibaba were trading lower slightly at $171.36 at the time of publication. 

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Photo courtesy of Alibaba.