Shares of Alibaba (BABA ) were down just over 0.5% through early afternoon trading hours Thursday—the final trading period before the Chinese e-commerce giant is scheduled to release its latest quarterly earnings report.
Alibaba has felt some pressure amid ongoing trade tensions between the U.S. and China, with the company notably drawing the ire of Commerce Secretary Wilbur Ross. However, global investors are hopeful that this week’s round of discussion between American and Chinese officials will help ease trade war concerns.
Meanwhile, Alibaba investors will soon have a brand new earnings report to digest. But what should we expect to see when the online retail behemoth reports on Friday morning? Let’s take a closer look.
Latest Outlook and Valuation
According to our latest Zacks Consensus Estimates, analysts expect Alibaba to report adjusted earnings of $0.88 per share and total revenue of $9.17 billion. These results would represent year-over-year growth of 39.7% and 63.7%, respectively. Investors should also note that this EPS projection has moved eight cents lower over the past 60 days.
Alibaba is currently trading at about 26.5x forward 12-month earnings—its lowest earnings multiple in over a year. In the past 12 months, its Forward P/E has been as high 43.4, with its median Forward P/E sitting at 35.9 in that time. It has also recently taken a rare dip below the average valuation of its peer group, so investors might consider this stock slightly undervalued heading towards its report date.
Earnings ESP Whispers
Investors will also want to anticipate the likelihood that Alibaba surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.
Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.
A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.
Alibaba is currently sporting a Zacks Rank #3 (Hold) and an Earnings ESP of -3.11%. This means that the most recent estimates have been lower than the consensus. In other words, our model is not conclusively calling for a beat.
Another important thing to consider ahead of Alibaba’s report is the company’s history of earnings surprises and the effect that these surprises have had on share prices. Alibaba missed earnings estimates last quarter, marking its second EPS miss in the past year.
But we like to judge the price effect of earnings announcements by comparing the closing price of the stock two days before the report and two days after the report. Last quarter’s miss resulted in an 8.3% slump in shares over this window. The quarter before that saw the stock drop 1.5% despite the company’s beat, but BABA managed 5.0% when it beat estimates three quarters ago.
In the prior-year period, BABA missed estimates and added 2.1% during our earnings window.
Alibaba is clearly unpredictable during earnings season, and that is likely because investors are more interested in other key metrics—or forward-looking guidance—compared to EPS results. Still, BABA is the “cheapest” it has been in quite some time, which might alleviate some pressure in the wake of its report, and the company is still in an aggressive growth period.
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