MY HUGE ALIBABA STOCK MISTAKE?
felix here guys and we're talking alibaba have i made an enormous mistake buying alibaba and buying more alibaba at the beginning of the year you know i'm a big fan of the company but nothing's happened to the stock price at all it's probably gone down a little bit since and i want to therefore revisit what are the reasons i bought it are they wrong let's look at the numbers uh so we're going to look at a benchmark compared to other similar companies like amazon et cetera jd we're going to look at the income statement we're going to look at a discounted cash flow model using past quarters numbers we are going to look at what the analyst thinks where we are compared to the price target and we are also going to look at who else has recently bought barber and should that sway me or us in in one way or another guys so it's going to be a bit of a deep dive a little bit more of a deeper dive than some so if you enjoy that if you are interested in alibaba guys stay tuned as always this is not financial advice this is just for entertainment only and remember guys there are two coupon codes down below 29 off on the on the stock course summer goat and 39 off on the pre-sale for the stock options course that's over 115 lectures teaching you how to earn passive income and that's launching on the 21st so in a few days and until then you have the opportunity to buy it at this great big chunky discount so let's start a little bit with the news and then we're going to run through all the things i just mentioned so you probably saw this in cnbc uh billionaire alibaba founded jack ma spending his time in philanthropy and hobbies like painting uh sounds like what i'd like to do but at least the painting part so here is um the the the uh joe tsai there he is the ceo of alibaba basically saying chakma's fine what are you talking about um this is unfortunately always been the story since november uh and much more so since christmas that this is apparently some sort of vendetta against uh and it never has been there is a broad change in regulation that's taken place in china and that's affected all of the major tech companies and we've seen it you know 10 cent and and everybody else made one everyone else in the space has the same issues because they've all been behaving in a sort of rather laissez faire kind of way and now regulation is in place for things like anti-trust for financial holding companies for regulating uh loans and lending and investments and many many other parts that for simply there wasn't regulation or if there was it wasn't really enforced so that's been the change and quite frankly it brings from my perspective china up to kind of european or american standards of regulation so i don't think that's really a bad thing or a good thing now of course in a sense if you have no regulation you can perhaps make more money but in the long run regulation is always something that kicks in so he's saying here i think you have to separate what's happening to jack and what's happening to our business our business is under some kind of restructuring on the financial side of things and also an anti-trust regulation we had to pay a big fine but we've gotten that behind us so we're looking forward so i the best comparison i can think of think of bill gates right build microsoft one of the greatest biggest companies out there fantastic stock i hold lots of it and what he's doing now is very different from what he's doing in microsoft right the guy made a huge fortune and then people get well they want to do something else nobody wanted he wants to do the same thing all their lives most people want to make a certain amount of money that they can do the things that they really want to do with their time i'm not saying he didn't enjoy setting up microsoft but you know he's doing his philanthropy and you know this and that and giving speeches and being a talking head and meeting influential people and just having an interesting life that's basically what he's doing and that's what jack ma wants to do when he got out of alibaba years ago so 2018 i think he said i'm going to focus on my philanthropy that's what i want to do and you know he was traveling around africa and he was helping young entrepreneurs and this is the sort of thing but anyway enough of jack ma he isn't really all that relevant i suppose that's really the point i'm trying to make now i've made the new benchmark table which of course is on the patreon guys so if you want to check that out uh the link is below um all of these charts always are and what is this this is a benchmark and i'll zoom in a little bit here um and let me just see did i freeze the first row no let me just do that so you freeze the first column uh you can't do it for some reason all right never mind i'll show you so the first row here is alibaba so this is alibaba and i've highlighted a few ratios and numbers that i look at when i buy things like this out and i've compared them and i've highlighted the top three so it's the best three and the key things that i look at so price to book for example alibaba is uh the third cheapest uh soho is cheaper jd.com is cheaper by that metric p e ratio jd.com is the cheapest again followed by ebay followed by alibaba and enterprise value divided by ebitda but sort of divided by a profit measure again alibaba is the third in that list jd again looking the most appealing now what you have to bear in mind with jd is that they are not so much of a platform but more a retailer therefore their margins are a little bit different and you can see that here look at when you see this down here what i'm looking at here you can see the operating income margin of jd is one percent because they're a retailer and retail is a very very tough business whereas alibaba has a 12.5 percent margin so therefore you would expect jd to be cheaper because i'd rather pay a little bit more for the higher margin business at least you know that's sort of the rationale here so here jack uh sorry jack mars business i was going to say you see you see how the media get to us they get in there here at is um the third highest so ebay again great operating income margins as sohu again pretty good alibaba in number three um return on common equity ebay is fantastic with that absolutely brilliant um why is that well ebay from my perspective is a business that hasn't changed a thing since about 1994 they haven't changed a font or a website or anything at all so they are just making money i think i think that's the business model basically invest change grow no no we don't need to do any of that we're just making money so very very impressive return on common equity alibaba with 17.8 to me that's still a very good number why because to me it's
one of the key things that tells me how much that stock can go up by because if you are returning 17.8 on the equity that's out there on the shares that are out there you would kind of expect that share price to move somewhat along with that number now it's not the only number that matters but someone along with it but on this metric ebay overstock.com and jd again very very impressive numbers now how about ebit margin so ebit is a much better number to look at than ebitda with ebitda you can do a lot of funny business you can do uh really some serious massaging of numbers i don't normally don't look at it very much ebit margin is twelve and a half percent um is that jd no that's so who so who's 13.8 uh ebay again most impressive margin here but 27 jd only one percent now you're thinking why is this guy throwing all these numbers at me because i want to get you a little bit familiar with these numbers because you should be looking at them i i would say because then you really start to understand a little bit what's out there now the numbers that i like the most i've highlighted in yellow and that's revenue growth so alibaba's revenue growth is 30 that's pretty impressive for a company that scale that size and that age jd very close and pdd massive almost 100 much newer company it's easier to grow at those rates in the early years it tends to like fizzle out a little bit so to me that's a number i really like ebit growth forecast so again profit growth 34 i still very much like that even though it's not the highest number here and then we have um net income forecast so this is compounded over five years of 16.6 so to me that is still very very impressive because to me this is a stable business and i'm getting a very good return if i'm getting 16 17 compounded return over five years i'm pretty happy like you do that with your portfolio you turn a you know small amount of money into an absolute fortune very very quickly it basically means every four years your investment doubles and think about it you do it from a thousand to two thousand it goes to four thousand is eight thousand it goes to sixteen thousand that happens pretty quickly so that to me is a fantastic number uh so i think the underlying business is still very much there yeah there are other companies that are also interesting i think jd is certainly a good good stock uh now amazon is and that's really something i wanted you to look at here also the net income margin of amazon is 5.8 percent um alibaba much
much more profitable now the amazon profit comes almost entirely from the cloud business whereas alibaba is the market leader in cloud but it's a newer business they've only just started to make money with it why because they've been investing very heavily into it now as that business starts to become profitable that profit margin will actually go up because what it has at the moment is a platform business so it is not a retailer alibaba is not a retailer they're a platform they allow third-party vendors to sell stuff on their platform whereas amazon is mostly owned inventory right so therefore the margins are much lower so if you therefore combine that with an aws style cloud business i think you are going to get a business that is way way way way more attractive but there is of course the enormous china discount hanging over it now let's have a look at a couple more numbers don't worry there won't be too many because i i i know you're getting you're getting tired you're like this felix guy always shows me numbers it does my head and i just wanted to show you that this is last 12 months period always revenue growth in the last 12 months was 40 that's pretty good that's better than the last couple of years um kovitt of course has something to do with that it's benefited everybody in that space gross profit margins are 41 and then um net income was 21 billion uh which is uh pretty impressive and yeah earnings per share is also pretty stable and bear in mind there was a huge fine handed out which will impact this so actually uh being at 8.5 or something like that compared to nine the year before it would actually have been a much better number uh than uh if we had not had the fine so to me the numbers look solid they have tons of cash if you look at the balance sheet there is uh more cash than you could know what to do with there's 49 billion of it i think it's actually more than that oh yeah the other current asset so there are short-term investments so in total they have almost 100 billion in current assets i think about 70 billion or so of that is sort of cash or cash equivalent so it is a very cash rich company and nothing to worry about in the sense of they're ever going to go out of business so i've updated a discounted cash flow model i'm using the latest numbers because bear in mind the last quarter was a bad quarter because of that fine right so it sort of hits numbers a little bit and i get a fair value here at 337 which is you know 130 dollars above the share price at the moment how do i get there it's actually not a difficult thing to do again and it's something guys i teach you in my course and i give you a template which is actually a little bit easier than this one uh so to check that out guys uh i'll stick with the the master stocks course down below summer go to the coupon 29 off that is where you learn how to make your own discounted cash flow models and it doesn't it will take you half an hour i'd say per stock and then you really have a very very different appreciation for what's going on here so for um this year 30 growth and then sort of it fizzles out 10 19 10 in a couple of bad years which is i think very very conservative because i actually think they're going to continue to grow at 20 to 30 percent for many many many years why because they are growing in southeast asia the cloud business is growing very rapidly and there are lots and lots of other parts and components to this business that are going to grow they are the operating system to many of the ev manufacturers in china so all the software all that stuff they are of course building alibaba cars and there's there's so many aspects to that business that if only one out of ten do well i think we are pretty much guaranteed much much higher growth than what i'm putting in here and uh profit margins okay i'm keeping those pretty pretty steady because i think they are just going to be solid why because of cloud i think 31 is actually realistic so that gets us to 337 dollars now you could of course say well okay let's say we are going to keep growing at 20 so let me throw in a few more 20 percents here for the those years going out uh and then maybe it goes down to 15 in 2031. look at the fair value then you had 500 is that a crazy number i actually don't think so no i don't think so i don't think it's a crazy number at all but i'm going to take them back out i'm going to give you the conservative one and you can play with it yourself just click on file make a copy or you can download into an excel file uh these are all on the patreon guys now price targets let's look at that let's look at am i just completely wrong am i still in this like la la land where i think i love the stock and therefore i'm looking blindly at only the good news well let's look at what the analysts are saying to us so let me grab a little pen here the analysts we have nine strong buy ratings we have 36 buy ratings and four holes so that's 49 analysts that's a huge number of analysts who are very very very very much positive on this there isn't a single cell rating on this which is just bizarre we are down here at that blue line over here we are at 209 the lowest price target we have from one of these hold guys on one of these guys who don't like alibaba at all for whatever reason they have a 231 dollar price target and now the bullish guys at 355 which is similar to where where i get to with this conservative number uh you could i think very much justify 400 plus but you know what's the point we're not there and the average is almost three hundred dollars 295 is the average price target of analysts so the difference between the average and where we are right now is uh 40 upside here right and that keeps going up basically i mean with the little blip here it's essentially a straight line the discount seems to be increasing which is just bizarre because we have put the vast majority of the regulatory stuff behind us but the market is not really accepting it so there was uh some chat here actually we have a baba group on our discord again you can get that through the patreon if you're not on there already with a lot of very very very uh dedicated alibaba investors um and share a lot of research which i truly appreciate and chinese braveheart here one of our lovely members he's just shared well uh about monish and he is if you don't know he is one of the great value investors um he basically uh copied the the warren buffett model rather aggressively and is done very very very well with it and um have a look at his portfolio here which is this manuscript rice portfolio from the last filing and you can see what does he hold he holds three things and he bought alibaba he bought 14.6 of it as his portfolio is now alibaba he sold some micron for that so that is is pretty substantial and how big is that holding it's 38 million us dollars so it's not not chump change and why did he buy that well i mean there is another one you might have heard of charlie munger he bought that and i did that in a previous video 16.34 of his uh his um publication company his portfolio is now in alibaba also 34 million a fairly similar amount again this this cheat the charlie manga portfolio tracker is also on the patreon guys you want to see it here the way you can find these things you go on the patreon and you click on baba or any of the other tags here and then you can find stuff pretty pretty simply but there is actually another pretty major owner of alibaba you might have also heard of which is bailly gifford who are early investors in tesla and neo and many many other companies real like long-term kind of early growth investors and look 3.4 percent of their portfolio is alibaba
limited here also and that is 380 368 million us dollars so much much more simply thank you for an amount because this is a seriously a large fund and they've done a good job right look at the line here uh that's actually a very very good fun i would say so they've certainly outperformed the s p 500 well they are a lot more techy it's probably not the greatest comparison but they have done very well so if you put in a 60 here in 2016 you would now have uh a hundred and and eight basically so you know it's tripled uh and in five years to triple that's pretty good you really can't argue with that i know a lot of people are kind of used to these everything should go up ten times within three months or something but you can do that with the part of your portfolio but it's it's it's not something you're going to be able to replicate over time otherwise you would be the world's most successful investor ever the munis chap for example is managed something like 30 on average per year and that's incredible and that puts them very very much at the top of the pile i think most funds would struggle to get to 10 a year and so i always advocate and sort of educate on it you have to make your own choices of course a portfolio of cool good stocks that compound over time and that should very very much be able to give you a sort of 10 to 18 return and again you compound that over time you do that over a long period of time you become fabulously wealthy you can't not be fabulously wealthy in fact everybody by the time they're 40 or 50 should be a millionaire and that's not putting people down if they are not it's just you could still do it you just the earlier you start the easier it is because if you understand this process of compounding and that's one of the key things of course i teach in my course and what you can do about it and how you can achieve it no matter what and you can do it with seventy dollars a month or with a thousand dollars a month uh you can make a huge amount of money on that so in conclusion therefore i think the numbers still stuck up nothing's really changed here um i actually think it's gotten cheaper and cheaper um you know if you look at the valuation uh pe is 24 price to book is 3.89 and look at amazon's period 63 and it's in many ways a worse business because their retail business has very low margins it's very capital intensive and very low margins their cloud business is tremendous but alibaba has already a retail platform business which is far superior because it's a platform they haven't got they have inventory and the cloud business they have they're also the market leader in china and in in in southeast asia they're very much pushing that aggressively so they are going to get that positive profit on top which will actually make their profitability much much higher so you would think the valuation should be the other way around why aren't they well i think a lot of that is a china discount it's just people for whatever reason don't like it i think given that we have very professional investors here like um and uh and and charlie who don't really care where companies are based as long as they're very profitable and very well managed and i think alibaba falls into that category it gives me some comfort now i don't i'm not somebody who says i bought this because of the gurus i do the other way around i do my own research analysis and then if i see oh they also bought it then it does make me feel a little bit more comfortable it's true because if those guys are right and they are quite often going against the trend they are not running with the masses if everybody has it you maybe shouldn't be in it i think that's also something to think about but i think in in short guys i think nothing has changed to me alibaba should be trading well over 300 it isn't um and it'll take time uh i think we will get an ipo maybe at the end of the year maybe sometime early in 2022 that will help a little bit it might not help that much to be honest with you because all the good news we've had in the last couple of months haven't really shifted the stock so this is a long term hold for the patient and i totally appreciate if some people think well i'd just rather buy the index i don't have to be exposed to the politics fair enough but for me i just think it's it's it's still a long-term very very good company um and why not hold them that's the way i look at it i just think it's undervalued but we don't really know when it's gonna turn around i think at some point is gonna turn around and it'll then give us much higher than average returns for a couple of years and i think that's the point where we maybe can take some profits but at the moment it is a long slow grind so if you are in the alibaba suffering camp guys come and join our alibaba anonymous discord group and and and enjoy the misery with us but you know it it is what it is you the market sometimes is irrational for quite extended periods of time so there isn't really a huge thing we can do about it well we can jump out of it if we haven't got the patience um but if we do have the patience and we fundamentally believe something is undervalued by as much as you know say 50 then you know why why not hold on to it that's sort of my view on that guys is that the most inspiring view well why not hold on to it perhaps not but i i for me you guys a lot of you know me i've done a lot of videos on alibaba and the underlying business check out the playlist guys if you really want to understand this business but for me there is a lot of really great stuff in here if you want to understand how to make your discounted cash flow models how to read financial statements and just become a smarter investor and have to turn a small amount of money into a very large amount of money i highly recommend the master stocks program down below 29 off is a summer go to coupon you also get to join our private uh chat group with me and like-minded investors and if you want to make passive income while you are holding stocks options are a fantastic way to do that and that's the pre-sale it gets launched on the 21st this course it's 115 plus lectures teaching you strategy not theory not history nothing boring that you don't need to know only what you need to know and that coupon is 39 off because it's still a pre-sale so jump on those guys make money is the coupon there because that's what i want you to do and that's available until sunday this week so i look forward to seeing you in the next video guys i truly appreciate all of you who smash the like buttons and join this beautiful community subscribe that way you get notified of more videos by the lovely algorithm and thank you guys i appreciate everything you do by watching and commenting and liking
2021-06-19 01:44
