Citron Says Alibaba Is 'On Its Way To $250'

Alibaba Group Holding Ltd BABA traded up 2.5 percent to the $183 area Wednesday after Citron Research deemed the firm’s total addressable market the most compelling “in the history of the stock market” and targeted a $250 valuation.

“Citron Research believes the most compelling growth story in the market is also the world’s most heavily shorted stock,” Andrew Left wrote in a note, reiterating an 18-month bull position.

By Citron’s assessment, the stock trades at a 40-percent discount to Amazon.com, Inc. AMZN, its widely-regarded U.S. counterpart, despite:

• Claiming 80-percent of Chinese retail sales against Amazon’s domestic claim of 40- to 50 percent;
• Better empowering small business;
• Operating with lighter assets;
• Boasting the support rather than opposition of local government;
• Growing revenue more than 20-percent faster; and
• Reporting higher margins without a robust cloud business.

Alibaba also claims opportunity to profit from China’s expected rise in global e-commerce sales, as well as a 33-percent stake in Ant Financial, the world leader in mobile payments. The latter’s calculated $150 billion value is not seen to be priced into Alibaba’s stock.

“The stock has flat-lined for nine months now, despite growing revenue over 50 percent throughout this time,” Left wrote. “BABA’s price-to-earnings multiple has compressed by a whopping 7-times over the same time period and is at its lowest level since early 2017 before the company saw an inflection in business fundamentals. The stock is a coiled spring.”

Alibaba will report its quarterly financials Friday, and Citron expects either guidance and earnings beats catalyzing a run above $200 or a potential buy-in opportunity on lower than expected operating margins. The former is seen more likely considering Alibaba primed the market to lower expectations.

An expected secondary listing in China’s market is also considered a major near-term catalyst.

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Photo by Dustin Blitchok.