BROKERS’ NOTES: Buy Alibaba, sell Snapchat
What the smart money is doing
Shaun Murison, senior market analyst at IG
The group previously forecast revenue growth for the upcoming quarter of 20%-25% annualised, and earnings before interest, tax, depreciation and amortisation of up to $50m. But it now expects results to miss these forecasts on the back of a “deteriorating” economy. The company has produced a total return of about -69% in the year to date, yet it still carries a very expensive valuation, with a forward p:e of 70. It also has a higher level of debt as a percentage of equity and weaker operating margins than its sector peers (Meta, Pinterest and Twitter).
We have seen historically high-growth stocks correcting and losing favour against more defensive counters and interest-bearing asset classes. However, the extent of the recent correction suggests that value is starting to rear its head in the technology space once again. The US Fang index, which includes Alibaba, Alphabet, Amazon, Apple, Baidu, Meta, Microsoft, Netflix, Nvidia and Tesla, represents top tech counters listed on US exchanges. While we favour most of these companies (perhaps Amazon and Tesla less so), Alibaba sticks out. It trades on the lowest forward p:e (12) relative to its peers, and its current share price is at roughly a 40% discount to long-term fair value, which is estimated at about $160.
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