Alibaba (BABA) Is Losing Its Magic: Time To Dump The Stock?

A prudent investment decision of offloading a weak performing stock at the right time can help in maximizing your portfolio’s return. Let’s find out why an e-commerce giant like Alibaba Group Holding Limited (NYSE:BABA) has fallen out of favor with investors.

Shares of Alibaba Group fell nearly 8.79% in the past one-year period and have lost 3.84% year to date.

Time to Dump Alibaba Stock?

The e-commerce industry is highly competitive. Hence, companies like Alibaba have to continually strive to maintain market share. Recently, another e-commerce biggie, JD.com (NASDAQ:JD) , has been gaining popularity from its reputation for being a brand-name electronics retailer. The company has been chipping away at Alibaba’s market share, and its revenue growth has outpaced the latter over the past seven quarters.

Now let’s look at the company’s earnings estimate revisions to get a clearer picture of analysts’ views on the stock. Over the last month, five analysts revised their earnings expectations for the ongoing quarter. Three of those analysts revised their EPS expectations downward.

Over the last 60 days, five analysts revised their fiscal-year earnings expectations downward for Alibaba. In this same time frame, no analysts revised their estimates higher.

As a result of the downward pressure from analysts, the company’s earnings estimates for fiscal 2017 and fiscal 2018 have plunged 17.0% and 20.0% to $2.02 and $2.50, respectively.

ALIBABA GROUP Price

ALIBABA GROUP Price | ALIBABA GROUP Quote

These revisions are stemming from Alibaba’s poor earnings results released on May 5. Although the company beat the sales estimates, EPS fell well below expectations. Alibaba posted quarterly EPS of 20 cents, missing our consensus estimate of 38 cents by 47%.

Infact, Alibaba Group Holding’s earnings history is also not impressive. The company missed the Zacks Consensus Estimate in two of the last four quarters, with the average negative earnings surprise being 10.35%.

Therefore Alibaba now carries a Zacks Rank #5 (Strong Sell) and a VGM score of “F”, indicating that there is a much greater likelihood of the stock going further down.

Bottom Line:

We recommend staying away from BABA shares until the Zacks Rank, VGM score and the estimates improve. If you really want to get in on the e-commerce space, stocks with Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM score of A or B are better. These include stocks like Facebook (NASDAQ:FB) and PetMed Express, Inc. (NASDAQ:PETS) . While Facebook sports a Zacks Rank #1, PetMed Express carries a Zacks Rank #2.