ALIBABA SHARES PULLING BACK AFTER THE INITIAL POST-IPO RUN-UP – WHERE TO BUY?

Alibaba Group Holding Ltd

just went through one of the most anticipated IPOs in history – and managed (thus far) not to be a huge disappointment to even the investors who bought in after the initial offering. The stock is certainly pulling back a bit off of the highs, but so far the pullback is nothing about which the longs need to be concerned. Does the company have the fundamental fuel to propel the stock higher? What do the technicals tell us? Let's take a look… What the bulls see in Alibaba… • A PE ratio just over 36 that doesn't seem that expensive compared to estimated 2015 revenue and EPS growth of 37.5% and 36.3% respectively • 42.15% profit margins that spin off $5.35 billion in positive annual cash flow • A strong balance sheet: o $18.26 billion in cash versus only just over $10 billion in total debt o A debt-to-equity ratio of 49.36%, and o A current ratio of 3.01 What the bears see in Alibaba… • Some expensive valuation metrics: o A market capitalization of $274 billion that exceeds the enterprise value of $262.3 billion o A price to sales ratio of 26.13 o A price to book ratio of 13.29 The technical take on BABA… Technicians note that BABA shares have pulled back to the oft-watched (by short-term traders) 21-day moving average and has managed thus far to hold up at that support level. With a limited trading history, there are not too many different ways to look at BABA technically. The technical crowd does, however, believe that some projected short-term support – in addition to the 21-day average at $107.24 – comes in at $106. The resistance on the stock comes in at the recent high at $120. Overall… If you are a believer in the idea that the market will continue to be buoyant into year's end – as many are – then you will be looking to buy BABA shares on a continued pullback to $106. If you are of the mindset that BABA is overvalued and overhyped, then you will likely be looking to try the short side of BABA if it re-tests the $120 level. With this stock, any size move in either direction should not come as a surprise to anyone.