Alibaba stock price popped. Will this recovery last?


Alibaba (NYSE: BABA) stock price has staged a strong comeback after the company published strong quarterly results. The stock surged by more than 15% on Thursday, pushing it to the highest level since May 17th. Still, the company has a long way to go considering that its stock has crashed by over 70% from its all-time high.

Alibaba earnings

Alibaba had a strong quarter even as the company went through a challenging period. The firm’s revenue rose by 4.4% to $30.24 billion, which was $555 million above what analysts were expecting. The firm’s earnings-per-share rose to $1.18. 

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The company’s China commerce revenue jumped by 8% while local consumer services revenue rose by 29%. At the same time, the closely watched cloud computing division saw its revenue rise by 12%. While these growth numbers are not spectacular, investors were encouraged by the operating environment that the company is operating in.

The company has a strong balance sheet. It ended the first quarter with over $54 billion in cash and very little debt. As such, the company has a cash to market cap ratio of about 4.7, which is an attractive one. The firm is also continuing with its share repurchases program in a bid to boost shareholder returns. In March, it increased its repurchases plan from $15 billion to $25 billion.

There are other reasons why the Alibaba stock price could recover. First, there are signs that Beijing regulators are working to ease the regulatory burden that the company is facing. This will happen since the Chinese economy is struggling. Data published today showed that industrial profits are slumping.

Second, the stock is dirt cheap since many investors are currently being guided by fear. Further, the company still has many growth drivers such as its commanding market share in global commerce.

Alibaba stock price forecast

Turning to the daily chart, we see that the BABA stock price has been in an overall strong bearish trend. As a result, the shares have remained significantly below the 50-day moving average level, signaling that bears are in control. 

Recently, we see that the stock has found a floor at about $80 support level. This could be a sign that the stock is bottoming. However, the stock still remains below the descending trendline that is shown in blue.

Therefore, while the fundamentals are positive, technicals suggest that the sell-off could continue for a while. A bullish comeback will happen when the stock moves above the descending trendline.

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