A Brief Look into Alibaba Stocks
The turmoil that is occurring in China with the battle for Hong Kong being waged while the United States is locked in a serious trade negotiation with China is clearly having an impact on the stock market. But, the impact could well be an inaccurate picture of what the final fallout will be for Chinese holdings, and particularly major corporations like Alibaba. The company is indeed the "Amazon of China," as is so often said of the retail giant, and the market is reacting to both issues in short-term anticipation of a long-term eventuality. The knee-jerk reactions of the market involving Chinese stock valuations paints an unusual scenario where company stock values go down while many internal corporate numbers indicate otherwise. Alibaba is clearly in this group of companies. The exit of Jack Ma as CEO is also seen as a factor in Alibaba's market price decline to a degree, but it also is not exactly what it seems.
The Gradual Replacement of Jack Ma
While most investors see a shake up at the top of the management staff as an indication of problems within the company, that is not the situation with Alibaba's stock. Jack Ma moved from the CEO position to being the Chairman shortly before the announcement of his retirement. The 20-year growth pattern of Alibaba has rendered a scenario for Ma to enter the world of philanthropic giving that has been an ultimate personal goal all along. Ma will remain on the board at Alibaba until 2020 at least, and his successor Daniel Zhang will continue the same mission that the company has had all along. And when the US-China trade negotiations are completed, Alibaba will still be sitting in its behemoth position. With respect to the use of consumable products throughout China, Alibaba is a core driver of the economy. And the consumption beast that is the USA is finding out too. The Chinese people will assuredly always need a dependable outlet of consumable products for the 1.4 billion Chinese population. Sales in the United States could just be gravy. The company market position is anchored, and the mission going forward will not change with Zhang at the helm.
The Ultimate Discussion in the Negotiations
The real discussion sticking point for the current trade negotiation with China centers around possible national security issues with big tech companies like Huawei. This is generally associated with the ultimate installation of the new 5G communication grid system that both nations know is coming in the near future. This component of any final deal between the two economic global powerhouses has very little to do with Alibaba except for quicker communications, even though the stock did take a 5% hit immediately after the news of problems with the trade package. For those who watch the stock level regularly evaluating opportunities for short-term profit taking, it was actually a good time to buy. Another concern for some investors is the overall reduction that may occur in the Chinese economy after a deal is in place, if that happens. Impact on Alibaba appears at this point to be a ripple effect of overall national economical changes in their home country. The current fluctuating price is between $160-170 per share.
The company management staff anticipates the next year to be a big one for Alibaba. The 2014 IPO generated a huge influx of cash driving the stock value exponentially upwards while allowing the company to use the capital for increasing the size and scope of business. The company was established almost 20 years ago, and they have become what they are in the relatively short amount of time when considering how long it takes many traditional corporations to grow. And even though the stock is seeing micro fluctuations in price, the long-term forecast is for a significant increase in total sales for 2020. While the 260% growth seen in the stock between 2015 and 2018 will surely not be repeated, the expected increase in sales could land the stock value around the $190 range. This forecast could set the stage for another short-term profit opportunity for investors like those who realized the hiccup quickly when the 5% dip happened with the snag in trade negotiations. Alibaba gross sales last year was listed at $58.1 billion with a $13.1 profit margin, calculating to almost a 25% gain. Not too bad for a 20-yr old company.
One thing is for certain regarding Alibaba within the Chinese economy. It will definitely maintain its positioning. And the potential for growth on the global scale is present also, as many Americans are really just now realizing the retails sales giant is a viable option to using Amazon for the myriad products they offer. Competition is good for the retail industry because consumers get products they desire at competitive prices while the companies grow the portfolios of the stock holders along with themselves. And even with the current trade negotiations still being in a state of flux, Alibaba is sitting in excellent position for both short-term and long-term prognostication with no where to go but up.
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