Is Alibaba Stock a Buy Ahead of Earnings?
Is Alibaba Stock a Buy Ahead of Earnings?
Insiders are buying the company’s stock, indicating it may be undervalued
- Alibaba is scheduled to report third-quarter fiscal earnings on Wednesday, Feb. 7.
- Earnings per share (EPS) of $2.73 on $37.16 billion in revenue is expected for the company’s Q3 results.
- An implied volatility rank (IVR) of 48.2 gives options traders several ways to play the stock.
Alibaba Group Holding (BABA) will report fiscal third-quarter results on Wednesday, Feb. 7, before the opening bell. The Chinese e-commerce giant is trading near all-time lows amid a broader stock market rout in China. Chinese stocks closed today at a five-year low as concerns around U.S. laws targeting China’s chip sector intensified despite measures by China’s fiscal and monetary authorities to prop up the market.
What do investors expect?
The fact that BABA is trading near all-time lows makes it an exciting opportunity for those who have faith in a comeback for the stock or for the Chinese market overall. Analysts expect earnings per share (EPS) of $2.73 on $37.16 billion in revenue, according to Yahoo Finance.
The new CEO, Eddie Wu, is expected to revive profits and reenergize growth drivers from Alibaba Cloud and Taobao & Tmall Group. However, restarting its Taobao and Tmall platforms comes with upfront costs because of increased incentives. Still, investors are excited to see what Mr. Wu can deliver.
Another upside for the stock’s outlook is recent insider buying. While former chairman Jack Ma stepped down in 2019, he bought about $50 million worth of shares in the fourth quarter, according to recent SEC filings. The current chair, Joe Tsai, purchased $150 million worth of shares in the last quarter, according to another SEC filing.
Insider buying shows executives and others with knowledge of operations are bullish on the stock, something investors typically like to see. Another development is that Alibaba is considering a sale of its InTime store arm, according to Bloomberg, citing people familiar with the matter. That would leave Alibaba to focus on its core e-commerce and cloud segments.
Trading Alibaba earnings
Alibaba, as of Friday, Feb. 2, holds an implied volatility rank (IVR) of 48.3, and the Feb. 9 expiration shows an implied move of +/- 4.17 points. If you expect the stock to stay at or within that expected move, you could trade an iron condor with the strikes at or slightly outside the expected move. Otherwise, there is still enough premium to go short a call or put spread, depending on your directional bias. Remember, the stock is already trading near all-time lows, so if the announcement impresses investors, we could see some buyers pile into the stock.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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