Chinese e-commerce giant Alibaba Group Holding Ltd (NYSE: BABA) reported an impressive fiscal 2017 fourth-quarter results in May. On the basis of a 60% y-o-y increase in Q4 revenues, compared to last year, we had forecasted a strong rally in the stock on May 23rd. Additionally, we had also informed our intention to invest in a call option, with a strike price of about $124.
The acquisitions made by the company in the last quarter and the ambitious expansion plans also influenced our decision. As anticipated, the stock blew apart all the resistance levels to record a new 12-month high of $148.29 on June 9th. We believe that the upswing is not yet overdue to the reasons given below.
The Hangzhou-based company is reportedly developing a smart speaker similar to Amazon’s Echo. However, as of now, the speaker will be able to accept voice commands in the Chinese language only. The intelligent speaker, which is expected to be unveiled as early as this week, will also have the capability to search and place orders in Alibaba’s shopping sites. Thus, it can be understood that Alibaba is currently targeting domestic customers.
Considering the fact that smart speakers do not exist in China, Alibaba may be creating a market for niche products. The product was developed in-house by the artificial-intelligence research teams of the company. It can be also construed as an attempt by the company to study the domestic response, before developing a product for the international market. Thus, considering the prospects of huge sales volume in the future, investors are obviously happy with the development.
In another development, Alibaba closed a deal to acquire the software subsidiary of the Chinese telecommunications gear maker ZTE Corp. The company is also planning to invest up to $1 billion to increase its stake in the Southeast Asian e-commerce platform Lazada Group. Notably, Ant Financial, a subsidiary of Alibaba Group, reported fiscal 2017 earnings that doubled compared to last year.
Thus, considering the growth prospects, analysts at Barclays have raised the price target to $175, from $140 issued earlier. Likewise, JP Morgan has issued an overweight rating, with a target price of $190 per share.
The price chart shows consolidation of the stock at 138 levels. The stock is also trading above its 50-day moving average. Furthermore, a bullish white swan harmonic pattern is also seen in the chart. Thus, we can expect new yearly highs in the days to come.
To make money from the uptrend, we wish to invest in a call option valid for a week. For increasing the odds of success, we would wait and enter when the stock trades near $140 on the NYSE.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.
