Alibaba Stock Analysis - Investing In China

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Following on from my previous video about investing in China, we want to find some really great Chinese companies. Hopefully we can find 1 or 2 that are investable and see if the market is offering us a good price. So let’s start with one of the most well known Chinese companies, Alibaba.

And today I’m going to do a full analysis of Alibaba.

Alibaba is a massive Chinese tech company known mostly for its e-commerce businesses.

Alibaba is actually the worlds largest retailer and ecommerce company.
It is also one of the biggest Artificial intelligence, Venture capital and investment companies in the world.

It assets include,
Alibaba.com - which is the largest B2B platform in the world.
1688.com - which is the Internal Chinese version of the same website.
Taobao - Which is the largest C2C platform in the world. Its the ebay of china.
Tmall - Which is the largest B2C platform in the world. Yes, it is bigger than Amazon.
Aliexpress - As a fun fact, Aliexpress is the most visited website in Russia
Alipay - which is kind of like paypal for the alibaba platforms. Run by a subsidiary called Ant Financial. The world’s most valuable Fintech company.

So they have most of the ecommerce ecosystem of China, which means that as more and more Chinese have more disposable income, the company will grow as well.

But like any investment, we want to see the company to be going strong in 20 years time.

Now there are the three key areas to the health of a business.
Do they have too much debt?
Is the company growing?
Is the company well managed?
Now we want to see a company pass all three of these areas. But unfortunately it is a bit of an art, but I have general rules about each criteria.
I developed my criteria from the legendary investors Benjamin Graham, Warren Buffett and Bill Ackman.

And don’t worry about the terminology, just get a feel for what is happening.

Can they handle their Debt? (start the tracker on the screen)
It is really important to look at the company’s debt because if business was to completely stop, for example because of a crazy government decision or something unforeseen, With low debt, they will be totally fine.
So to see if the business can handle its debt, I went through the debt/equity ratio and current ration of the business.

And for Alibaba, as you can see, since 2013 when they were gearing up to grow, since then the debt to equity has been very manageable.
The current ratio is a little lower than I would like. I’m looking for above a 1.5 normally. Will give it a pass, but it isn’t perfect.

Are they growing?
We want to invest in a company that is growing, right? But just 1 or 2 years of growth isn’t convincing, I really want to see consistent long standing growth.
So to check for consistent growth, I look at Book value/share, EPS and operating cash.

And these are nearly flawless growth numbers here from Alibaba. If anything, it might be growing too fast and unlikely to keep up this trajectory.
So that will be the only concern. But still definitely a tick for growth. So let's now look at the management.

Is the company well managed?
Now, we can’t just go and have meetings with the management team and sit in on all their meetings.
But there are some tell tale signs in the financials that tell us if the management are making good decisions.
So I check for cash deployed into investing activities for the business, Return on Equity, Free cash flow, Cash on hand and a dividend. (show Invested Cash, ROE, Cash on hand and free cash flow graph together).


Alibaba are spending most of there operating cash on investing. Which is typical of a growth company backing themselves to get bigger and bigger.
This also explains why their is no dividend. They are growing and want the money for growth.

The return on equity is solid above 10 so I’m happy with that.

This is impressive, Alibaba are growing their cash reserves so that they can deploy this money into new opportunities and expansion plans. They will be able to take on the future in a good position.

Let’s now check the value

Well Alibaba is a strong company but the current share price is just too high. But I would happily be an investor if the price was to get to $145.

Until then, I’ll keep looking for investment opportunities and hopefully be adding a few more Chinese companies to my watchlist.
Hit subscribe if enjoy my analyses and see you in the next video