Should You Buy Alibaba After Earnings?

Another big-name technology company released its most-recent earnings results this morning. I’m talking about Alibaba (BABA), or as some folks like to call it, the “Amazon of China.”

Similar to Amazon (AMZN), Alibaba posted an earnings beat and revenue miss. For its first quarter in fiscal year 2022, non-GAAP diluted earnings per ADS increased 12% year-over-year to $2.57 (RMB16.60). Analysts were calling for non-GAAP diluted earnings per ADS of $2.24, so the company topped estimates by 14.7%. Revenue rose 34% year-over-year to $31.87 billion (RMB205.74 billion), but still fell short of analysts’ expectations for $32.36 billion (RMB209.4 billion) by 1.7%.

Alibaba’s cloud computing division climbed 29% year-over-year to $2.49 billion (RMB16.05 billion), largely due to “robust growth in revenue from customers in the Internet, financial services and retail industries.”

Company management also announced that it would raise its share buyback program 50% to $15 billion, up from $10 billion.

However, neither the earnings report nor the new share buyback program excited Wall Street. In fact, the stock slipped 2.5% at the open today. The reality is Alibaba’s growth is slowing. Case in point: revenue soared 64% year-over-year in its fourth quarter in fiscal year 2021. The $2.8 billion fine China hit the company with back in April for breaching its anti-monopoly rules didn’t help either.

Now, as I mentioned, Alibaba’s quarter was similar to Amazon. Amazon’s earnings topped analysts’ estimates by 23.5%, while revenue fell short of analysts’ expectations by 1.8%. Its cloud computing division, Amazon Web Services (AWS), grew year-over-year sales in the quarter by 37% to $14.81 billion. (If you’re interested in my full earnings review for Amazon, you can find it here.)

But there’s another similarity between the two companies that I want to call to your attention: their Total Grade in Portfolio Grader. Let’s take a look.

As you can see in the Report Card above, both companies earn a D-rating for their Total Grade, making them both “Sells.” The F-ratings for their Quantitative Grade indicate that buying pressure in these stocks has all but dried up. Amazon’s Fundamental Grade, which stands at a B-rating, is better than Alibaba’s D-rating. I should also note that Alibaba has held a D-rating through June and July. Amazon was C-rated in May and June and then slipped to a D-rating after its earnings report was released. So, high-growth investors following my Portfolio Grader would’ve known not to invest in either company leading into earnings.

Instead, they would’ve focused on fundamentally superior stocks like the ones I recommend in Growth Investor. Take Tempur Sealy International, Inc. (TPX), for example.

TPX is a popular provider of sleep solutions. Back in 2012, Tempur-Pedic International merged with Sealy to create a leading American manufacturer of mattresses and bedding solutions. Today, the company’s mattresses and bedding are sold around the world under a few well-known brands, including Tempur-Pedic, Sealy and Stearns & Foster.

It’s not nearly as flashy a stock as Alibaba or Amazon, but it does rate highly in my Portfolio Grader. As you can see below, the stock earns an A-rating, which it has held since May. (It also has an A-rating in my Dividend Grader, making it an AA-rated stock and the perfect blend of income and growth.)

The housing boom here in the U.S. has added significantly to Tempur Sealy’s top and bottom lines, as evidenced by the company’s most-recent quarterly report. On July 29, Tempur Sealy released results for its second quarter in fiscal year 2021—and they were spectacular.

During the second quarter, total sales soared 75.8% year-over-year to $1.17 billion, up from $665.2 million in the same quarter last year. Analysts were expecting total sales of $1.14 billion. Second-quarter adjusted earnings surged 295% year-over-year to $0.79 per share, compared to $0.20 per share in the second quarter of 2020. Analysts were looking for adjusted earnings of $0.56 per share, so TPX posted a 41.1% earnings surprise.

For fiscal year 2021, Tempur Sealy now expects adjusted earnings per share between $3.10 and $3.25, up from $1.94 per share in 2020. Given the company’s strong outlook going forward, Tempur Sealy also upped its quarterly dividend by nearly 30%.

The stock surged more than 15% on the heels of its earnings results to a new 52-week high. I recommended TPX to my Growth Investor subscribers on April 30, 2021, so those who followed my advice in Growth Investor or Portfolio Grader were in well before TPX took off.

The reality is that, at the end of the day, earnings will rule the roost. In my 40-plus years in investing, I have found that earnings work about 70% of the time. And even if a stock does not go up right after announcing good earnings, it often exhibits relative strength and firms up.

So, with earnings results come in fast and furious, now is the time to focus on fundamentally superior stocks. The reality is that we’re in the midst of the strongest earnings environment in more than a decade. In fact, FactSet recently revealed that the S&P 500’s average second-quarter earnings growth rate is 85.1%, or the largest growth rate since the fourth quarter of 2009. Second-quarter revenue has climbed at a 23.1% average pace. And, folks, we’re not even halfway through the earnings season!

With that said, it’s important to understand that, for many companies, the second quarter will represent peak earnings, and it could very well be the strongest sales and earnings momentum that they ever post. On the other hand, there are companies with strong forecasted earnings and sales growth, and they will likely remain gold-medal winners for many quarters to come.

Of course, I’m referring primarily to my Growth Investor stocks, which are forecast to post 57.1% average annual sales growth and 55.1% average annual earnings growth. My average Buy List stock has also had its earnings estimate revised 15.7% higher in the past three months, and topped analysts’ estimates by an average 33.7% in the last quarter. So, big earnings surprises are likely. And, so far, my Growth Investor stocks have risen to the occasion, with the majority achieving better-than-expected earnings for the most-recent quarter.

And earnings season for my Growth Investor stocks is just getting started. In fact, I have 21 companies reporting this week. I expect my companies to continue posting wave-after-wave of earnings results, which should dropkick and drive them higher. If you’re looking to ride that wave, now is a great time to join. If you choose to sign up, you’ll have immediate access to my latest Growth Investor Monthly Issue, newest buys, Top 5 Stocks list and much, much more.


Louis Navellier

P.S. There’s a great divide opening up in America and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.

On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.

What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.

Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.

It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.

It doesn’t matter if you have $500 in savings or $5 million. You can benefit from the information in this video.

It’s free to watch and by doing so I know you’ll be ahead of everyone else struggling to understand what is really going on.

Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owned the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

Amazon (AMZN), BABA, TPX

More Louis Navellier



RSS Feed

Little Book

InvestorPlace Network