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Alibaba share price hits new high: Where next in 2020?

Alibaba Group saw share price soar to new heights on Christmas eve. How should investors approach the rising stock next year?

Source: Bloomberg

Chinese e-commerce site Alibaba Group Holding Limited (NYSE: BABA) has extended its lead as Asia’s most valuable company, after it hit a new share price peak of US$215.43 on Tuesday, December 24.

This takes the company’s market capitalisation to US$574.80 billion, further distancing itself from its nearest rival – fellow Chinese technology company Tencent, which has a market cap of US$422 billion.

Its secondary listing in Hong Kong (HKG: 9988), which kicked off last month, also saw share price rise to a new high of US$211 per share that same day.

Alibaba’s American Depository Share (ADS) price has risen over 33% since October, when it first announced a launch date for its public offering in Hong Kong.

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More room to grow

Analysts say that while the company’s stock performance in the last one month has been nothing short of impressive, there is still a lot more room for share price to grow.

According to Alice Yap, Managing Director & Head of Pan-Asia Internet Research, Citigroup Global Markets Asia, Alibaba’s ADS could hit US$284 per share over the next 12 months.

She wrote in a recent media note that the group will likely increase its total revenue by 36.5% in the fiscal year 2020 to hit 514.5 billion yuan (US$73.1 billion). She also predicted that earnings before interest, taxes, depreciation, and amortisation will rise by 32% to 161.4 billion yuan.

Making mention of the company’s ‘Digital Economy’ strategy, she noted: ‘Three years later, as we head into 2020, Ali has extended its commerce addressable market to New Retail, and is working with industry partners to transform and digitise their operations via the Alibaba Business Operating System’.

The stage certainly seems set for Alibaba’s continued expansion in 2020, with CEO Daniel Zhang re-emphasising this point during the Hong Kong IPO launch. He stated that the group ‘wants to use digital technology to help customers and partners embrace the era of the digital economy’.

It also hopes to create 100 million jobs eventually, serve over one billion annual active consumers, and achieve over 10 trillion Chinese yuan in annual gross merchandise volume through its China consumer business.

Still some risks involved

While it seems like the bull case remains strong for Alibaba, there are several geopolitical and economic factors that investors should pay close attention to in the coming months for good measure.

The upcoming US-China phase one trade deal signing ceremony slated for the first week of January, as well as China’s GDP growth slowdown, are two factors that could potentially affect Alibaba’s share price movement.

Furthermore, as Investor’s Place Thomas Niel wrote, Alibaba US stocks are currently trading at a slight premium, with lots of ‘priced-in expectations’.

‘If the company falls short of its impressive growth projections, shares could take a big tumble,’ he wrote, adding that his recommendation is for investors to ‘wait for a reasonable valuation’ before making a move.

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