Thursday, 7 May 2015

Alibaba - liking the structural growth and cash flow

Back in late January I used my Yahoo Finance Contributors column (link here) to highlight that Alibaba was in my view a cash machine.  Since I wrote this up (and bought some stock) the shares have tacked sideways-to-down...until today:


Many of the themes apparent in my January write-up continue to be apparent today.  The mobile exposure numbers remain simply mind-blowing (126m net adds!)

Back to the cash flow how does US$7.7bn of Alibaba's FY15 sound?  Well that is a cool 4.1% free cash flow yield which is very solid. 

Of course another way to look at it is that the company is trading at a historic FY x29 ebitda or over x40 non-GAAP diluted EPS.  So hardly a value situation per se and, as noted below, the company's acquisition strategy is diluting underlying margins too.  



My view would be that building this sort of a client base predominately in the world's fastest growing large economy is clearly structurally very interesting.  Just under 40% ebitda growth for a just over x40 earnings rating...peg ratio advocates could certainly make that work.  

So not a stock for everyone maybe but I can still make it work and want to add further over time/on weakness. The US$80 level the share bounced from today is one such level, US$70 (or 5% free cash flow yield using the FY15A free cash generation) is another.  

Alibaba: i like the structural growth and cash flow and the management evolution announced today also sounds sensible. I am looking for opportunities to augment my holding. 

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