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Amazon & Alibaba: A Sober Valuation & A Buy Before Earnings

These are our articles posted on Seeking Alpha. Click "READ MORE" if you would like to read the rest of the articles.

A Sober Approach To Valuing Amazon

Summary

  • Amazon has been up 10% after the results of Q1 2016 due to higher than expected earnings driven by cloud services business.
  • But still earnings were a mere $1.07 per share in Q1 2016 and operating margin is in the range of 2-4%.
  • Investors are buying into the dreams of their charismatic leader Jeff Bezos. But this euphoria will not last long.

Up until the last few years, it had been difficult for analysts to arrive at a correct valuation for Amazon (NASDAQ:AMZN). It was due to the fact that despite being 20 years old, Amazon never produced any significant positive earnings. Profits, if any, were plowed back into the company on the back of the audacious dreams of its CEO, Jeff Bezos. It was only since last year that analysts have seen positive earnings in consecutive quarters and the stock has sky rocketed since then. In fact, since 16th Jan 2015 to 29th April 2015, the stock has surged 127% (from $290.74 on 16th Jan to $659.59 on 29th April) and in spite of that analysts are still maintaining a buy recommendation on the stock... READ MORE



Alibaba: Buy Before Earnings

Summary

  • Alibaba is expected to report earnings for the fiscal quarter and fiscal year ending March 2016 on Thursday.
  • Alibaba’s stock has upside after selling off during the volatile beginnings of 2016.
  • Alibaba’s earnings have realized high growth rates since its IPO in 2014.
  • We expect the company to continue to beat earnings, revenue estimates, and continue its growth into 2017, driving its share price higher.
  • Potential trades include (1) long stock and buy puts or (2) a “bull collar” prior to the earnings release.

Alibaba (NYSE:BABA) sold off in January and February 2016, primarily due to concerns of China's macroeconomic conditions and the selloff in the Chinese equity markets. However, Alibaba is fighting these concerns, and it's expected to continue its strong growth rates in its active buyers, revenue and EPS. With the Chinese equity markets rebounding after a dismal start to 2016, Alibaba's stock price is expected to follow and continue higher after its earnings report on Thursday.

We expect Alibaba to report stronger than expected earnings and guide its full-year fiscal 2017 revenue and EPS estimates higher. In turn, the stock price will experience a meteoric rise above $80. This is highly bullish for short-term investors. Additionally, long-term investors could gain from an investment in Alibaba due to the potentially high economic growth rates in China, which will drive Alibaba's growth rates and stock price higher. Due to all these catalysts, bullish trading opportunities in Alibaba exist before and after May 5, 2016... READ MORE

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