Alibaba (BABA) Stock Is A Strong Sell Right Now. Here's Why
Zacks Investment Research | Jun 01, 2016 04:15AM ET
Today, SoftBank Group (OTC:SFTBY) announced plans to sell $7.9 billion worth of Alibaba (NYSE:BABA) shares. The company is doing this in order to cut down its debt. Currently, SoftBank owns about 33% of Alibaba shares. After selling the stock, SoftBank will retain about a 28% ownership stake in the Chinese e-commerce giant. SoftBank hasn’t announced if it is bearish on BABA shares over the short term, but maybe it should be.
Alibaba stock has recently been downgraded to a Zacks Rank #5 (Strong Sell). Analysts have been revising their earnings expectations lower over the last month. These revisions are being driven by the poor earnings results from Alibaba’s quarterly earnings which were released on the 5th of May. Although the company beat sales estimates, EPS fell well below expectations. BABA posted quarterly EPS of $0.20, missing our consensus estimate of $0.38 by 47%. Alibaba shares have dropped by over 4% since SoftBank announced its plans to sell BABA stock.
Over the last month, 5 analysts have revised their earnings expectations for this quarter. Four of those analysts revised their EPS expectations downwards. As a result, our quarterly EPS consensus has moved lower, going from $0.45 to $0.39.
Over the last 60 days, 10 analysts have revised their fiscal year earnings expectations downwards for Alibaba. In this same time frame, no analysts have revised their estimates higher. As a result of the downward pressure from analysts, our EPS consensus for the current fiscal year has dropped significantly, going from $2.43 to $2.11.
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Bottom Line:
Alibaba does not have a consistent track record when it comes to beating earnings expectations. On top of all this, earnings estimates are being revised lower for Alibaba. If the company continues to be inconsistent on the EPS front, it may not be long before its shares start trading below its $68 IPO price tag once again.
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