Alibaba BABA shares are up 16.3% in the last 20 days and it’s becoming increasingly difficult to figure out why.
During this time, the company reported disappointing earnings results, missing the Zacks Consensus Estimate by 28.6%. OK, so it didn’t do too badly on the revenue line and the earnings miss was largely on account of increased investments in technology, marketing, etc. And this is what drove the Zacks Consensus Estimate for 2016 and 2017 fiscal years down 12.6% and 11.2%, respectively.
But since this isn’t all that different from what every other ecommerce company is doing — including Amazon AMZN and eBay EBAY — it doesn’t help one understand investor enthusiasm.
And that’s not all: there has been quite a bit of negative news flow in recent weeks, first about the company getting sued for selling fakes on its platforms and second, about its decision to curtail hiring. There also appears to be an ongoing management reshuffling that seems to indicate a streamlining of operations.
Another thing you may want to consider is the broader market in which Alibaba operates. Alibaba is also known as the Amazon of China and China GDP growth hasn’t been exciting of late (ending 2014 at 7.3% and contracting to 7% in first-quarter 2015, according to the National Bureau of Statistics of China). In fact, the government is concerned about money flow into the stock market, so it is using state-run media to encourage investors to get out of real estate and invest in equity. Government initiatives are helping the market and further initiatives are expected.
Alibaba’s brand name, scale, geographic expansion and opportunity to grow its cloud services business are positives. And growth stocks generally trade higher than current business conditions would justify as the company’s prospects are factored into the price. But in the absence of a driver (or catalyst if you will), it may be a good idea to hold off buying the shares. And the good news is, there are plenty more fish in the sea…
We have hand-picked a few with buy ratings and Growth Style Score A. (For a detailed explanation of the Zacks Style Score see here.)
Endurance International EIGI
This Zacks Rank #2 (Buy) company offers cloud-based platform solutions, including domain registration and management, website building tools, web hosting, malware protection and back-up services to small and medium-sized businesses.
The company topped estimates in three of the last four quarters. In the last quarter, it beat the Zacks Consensus Estimate by 24.0% after which 2015 and 2016 estimates moved up 7.1% and 4.3%, respectively. Growth over the next five years is expected to be 20.3%.
Globant S.A. GLOB
This Zacks Rank #2 company offers a broad range of Internet-based, big data, enterprise and mobile software solutions and services in the U.S., Europe and Latin America. It targets small and medium-sized businesses in the media & entertainment, professional services, technology, telecom, travel & hospitality, banking, financial services, insurance, consumer, retail and manufacturing industries.
Globant beat the Zacks Consensus Estimate by 37.5% in the last quarter, which took the four-quarter positive surprise to 22.4%. Estimates for 2015 and 2016 are up 5.7% and 1.9%, respectively. The long-term growth rate is 20.0%.
Selectica Inc. SLTC
This Zacks Rank #2 company focuses on contract lifecycle management (CLM) and other cloud-based services to high-tech, telecom, manufacturing, healthcare, financial services and government customers. It operates through a direct salesforce in the U.S., Canada, India, New Zealand, Switzerland and the U.K.
Following three quarters of misses, Selectica beat the Zacks Consensus Estimate in the December quarter by an impressive 14.6% (fourth quarter results for the year ending in March will be reported on Jun 10).
While the company is expected to continue making losses in 2016, the loss estimate is down 21.3% since the company last reported.
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