NEW DIRECTIONAL PUT PLAYS
Alibaba Group - BABA - close: 57.82 change: +0.43
Stop Loss: 61.05
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 15.8 million
Entry on September -- at $---.--
Listed on September 29, 2015
Time Frame: Exit PRIOR to earnings in November
New Positions: Yes, see below
BABA was the biggest IPO in history. After a rocket-ride higher shares peaked at $120.00 in November 2014. Today BABA is in bear market, down -51% from its peak. The stock is on pace for its fourth monthly loss in a row. The company's valuation has plunged $75 billion since May (currently at $143 billion). There doesn't appear to be any bottom in sight.
BABA is in the services sector. According to the company,
"Alibaba Group's mission is to make it easy to do business anywhere. The company is the largest online and mobile commerce company in the world in terms of gross merchandise volume. Founded in 1999, the company provides the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with hundreds of millions of consumers and other businesses."
Alibaba Group's major businesses include:
Taobao Marketplace (www.taobao.com), China's largest online shopping destination
Tmall.com (www.tmall.com), China's largest third-party platform for brands and retailers
Juhuasuan (www.juhuasuan.com), China's most popular online group buying marketplace
Alitrip (www.alitrip.com), a leading online travel booking platform
AliExpress (www.aliexpress.com), a global online marketplace for consumers to buy directly from China
Alibaba.com (www.alibaba.com), China's largest global online wholesale platform for small businesses
1688.com (www.1688.com), a leading online wholesale marketplace in China
Alibaba Cloud Computing (www.aliyun.com), a provider of cloud computing services to businesses and entrepreneurs
BABA's IPO last year was a huge event for Wall Street. They came to market with 320 million shares that priced at $68.00. BABA opened for trading at $92.70. Today the number of shares outstanding has ballooned to 2.48 billion and the number of shares in the float is over 1.6 billion (available for sale). The company just had a huge lock up expire last weekend so major shareholders are now able to sell.
Big momentum stocks like BABA draw a lot of attention because of the company's growth rate. BABA is still growing. The problem is that growth is slowing down.
BABA reported their Q4 report on May 7th. Earnings of $0.48 per share beat estimates by seven cents. Revenues were up +44.7% to $2.81 billion, which was above estimates. Their Q1 numbers were announced on August 12th. BABA only beat earnings by a penny with $0.59 a share. Revenues were up +28% to $3.26 billion but that missed expectations. BABA's management tried to soften the bad news by announcing a big $4 billion stock buyback program over the next two years.
The buyback news didn't work. Shares of BABA plunged on the earnings news. Wall Street is turning cautious on the stock. Bloomberg recently reported that 12 analysts have cut their BABA sales estimates for Q3 and Q4, the most important quarter of the year. Wall Street is now forecasting BABA sales growth to slow down to +27% in Q3 and +24% in Q4. This is the slowest pace of growth since BABA's IPO.
Why the bearish outlook? The answer could be the slowing Chinese economy. The country is suffering from a hard landing as Chinese growth sinks to its slowest pace in years. The biggest shopping day of the year is Singles Day on November 11th. This year BABA is facing tougher competition for the online shopping fest. Barron's recently argued that shares of BABA could fall another -50%. The point & figure chart is bearish and forecasting at $51 target.
The bearish trend of lower highs has pushed BABA's stock to record lows and below its IPO price of $68. As concerns over China's economy persist BABA could have much further to fall. Tonight we are suggesting a trigger to buy puts at $57.15. We will plan on exiting prior to BABA's earnings in November.
Trigger @ $57.15
- Suggested Positions -
Buy the NOV $55 PUT (BABA151120P55) current ask $3.20
option price is a current quote and not a suggested entry price.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.
Option Format: symbol-year-month-day-call-strike