Brean Capital’s Frank Longman mentioned that Alibaba Group Holding Ltd BABA “recently broke out of a low base to suggest a bear to bull reversal and it looks like a name to consider strongly on the long side.”
Longman maintains a Buy rating on the company, with a price target of $115.
The Analysis
The analyst framed Alibaba Group as a “126 before a close below 87” operating assumption, explaining that the construct represented 31.8 percent upside to the price target as compared to a 9 percent risk to stop.
“To derive this target, we're simply "stacking the base" on the assumption that energy released on the base breakout tends to approximate the energy compressed in the base,” Longman went on to say.
In terms of risk management, the analyst believes the stock closing below 87 would close the earnings gap, leaving the stock at the base case.
For Opportunistic Buyers
However, for those looking for a more favorable entry point, Longman recommended the 89–93 price range, with the risk/reward skewed “from the top of support improving to 35 percent versus 640 bps.”
“Opportunistic dip buyers can consider adding exposure on pullbacks to 89-93,” the analyst added.
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