3 reasons why Alibaba shares could go up

After reaching a record of $ 211.70 in June, Ali Baba (NYSE: BABA) stocks lost nearly a third of their value as investors feared an escalation of the trade war between China and the United States.

Yet, at this point, sales seem excessive. Here are three reasons why the Chinese titan's internet stock price could rebound before too long.

Source of the image: Getty Images.

A massive and growing core market

According to Forrester, China's e-commerce market will reach $ 1.8 trillion by 2022, up from $ 1.2 trillion this year. With only 38 percent of the 1.4 billion Chinese people currently buying online, this huge market is expected to grow steadily for many years.

Alibaba is well positioned to benefit from this growth, perhaps more than any other company. The company dominates e-commerce in China, with a market share of over 50%, according to Statista. Alibaba has established a formidable presence in the B2C (B2C) and B2C (C2C) segments through its popular Tmall and Taobao markets.

Alibaba is also taking aggressive action to capture a larger share of the offline retail sector in China. The initiatives of the company "New Retail" include Hema supermarkets, Intime department stores and a multitude of partnerships with other physical retailers. This business sector of Alibaba is in full swing; New retail sales contributed to a 344% year-over-year increase in "other products", which reached more than $ 1 billion in the first quarter of Alibaba's 2019 fiscal year.

Better still, Alibaba expects the success of these projects to encourage many other physical retailers to join this project in the coming years. Alibaba offers its retail partners technological upgrades such as data analytics, digital payment systems and omni-channel capabilities. In return, these companies are part of the ever-expanding ecosystem of Alibaba, which often acquires significant stakes in these companies.

Better yet, New Retail is helping to expand Alibaba's addressable total market to almost all of China's retail economy, for which sales are expected to reach $ 7.2 trillion. by 2020, according to the Ministry of Commerce. Thus, despite its annual revenues estimated at $ 40 billion, Alibaba has a considerable growth margin.

Intriguing international growth opportunities

Not content to dominate its domestic market, Alibaba expands its operations in several key international regions.

For example, Alibaba has invested $ 4 billion in Lazada, a Singapore-based online shopping mall, which has allowed it to enter the fast-growing market of Southeast Asia. Alibaba recently joined the Russian technology giant Mail.ru launch a new e-commerce joint venture with Kremlin support, which would give it a powerful advantage over competing platforms.

Alibaba's global ambitions are already bearing fruit: the retail turnover in international trade jumped 64 percent to $ 652 million in the first quarter.

In a recent interview with Bill Mann of The Motley Fool Group, Ming Zeng, a longtime leader at Alibaba, explained the reasons behind the company's international efforts:

We are spending globally because of our mission. We want to create a global online market that can really connect consumers, producers and service providers around the world. And we are pushing the digital economy for the whole world to go forward.

Investors should expect that Alibaba will continue to increase its investments in international markets in the coming years, with the international being at the heart of its mission. This should help strengthen Alibaba's strong growth in China and enhance the upside potential of the stock for the long-term shareholders.

A good price

Despite its promising future, Alibaba is now trading at less than 20 times earnings expectations after falling 30% in recent months. This is an attractive price to pay for a dominant company that is expected to increase its earnings and earnings per share by 39% and 36%, respectively, over the next year.

Alibaba is an even better transaction considering its 33% stake in Ant Financial, which operates the # 1 mobile payment platform in China and recently raised $ 14 billion in financing for a $ 150 billion valuation .

As such, the recent downturn in Alibaba shares offers long-term investors a chance to acquire shares in this elite, low-cost company. But this opportunity may not last long; I expect Alibaba's shares to reach new heights all the time, as the market comes to appreciate the immense potential of its new retail business and its initiatives. of global expansion.