Michael Burry – founder and manager of Scion Capital – has recently stacked his portfolio with seven new positions in companies he believes are primed to continue growing despite uncertain economic conditions.
We’ve already discussed two of his positions – COHR and BKI – but today, we’re taking a look at a 3rd company Burry made a stake in – Alibaba (BABA). The 50,000 shares Burry purchased recently now make up a whopping 10% of his entire portfolio. It’s clear he sees potential in this stock – but we’re not so sure where exactly that potential lies.
Alibaba reached its peak nearly three years ago in October 2020. Since then, it’s been a steady fall from its high of $309/share. The stock is down 16% in the last year and nearly 20% in the last month alone.
The company has struggled to grow the top line over the past few years. This has been a major challenge for Alibaba after being considered among the top growth stocks at one point. Revenue has become basically stagnant, and to make up for this, the company is focusing on improving its bottom line to become more profitable. As a result, the company has been able to invest in acquisitions and buy back stock – a whopping $3.3 billion of stock was repurchased in the last quarter alone.
Still, we’re not sure about this position by Burry – and there are actually two major issues we see with BABA when looking at through the VectorVest stock analyzer software.
Despite Fair Safety, BABA Has Poor Upside Potential and Timing
The VectorVest system simplifies your trading strategy to help you win more trades with less work. You’re given all the information you need to make confident, emotionless decisions with just three ratings. These are relative value (RV), relative safety (RS), and relative timing (RT).
Each of these ratings sits on a scale of 0.00-2.00, with 1.00 being the average. Ratings over the average indicate good performance, while ratings under the average indicate poor performance.
The VectorVest system makes things even easier, though, by taking these three ratings and offering an overall VST rating for each and every publicly traded stock. And based on that rating, you’re given a clear buy, sell, or hold recommendation. Below, we’re going to point out the current problems BABA is facing purely from a stock analysis perspective to help you figure out whether you should fade or follow Burry’s move with this stock:
- Poor Upside Potential: The RV rating gives you a more detailed look into the long-term price appreciation potential for a stock (projected 3 years out) compared to AAA corporate bond rates and risk. And right now, the RV rating of 0.62 is poor for BABA. Making matters worse, the stock is overvalued. Its current value is just $46.99/share.
- Fair Safety: While the RS rating of 0.85 is a ways below the average, BABA still has fair safety. This rating is calculated by analyzing the company’s financial consistency and predictability, debt-to-equity ratio, and business longevity.
- Poor Timing: Another thing holding BABA back is the poor timing it has right now - as indicated by the RT rating of 0.52. This rating is based on the direction, dynamics, and magnitude of a stock’s price movement. The system calculates the rating day over day, week over week, quarter over quarter, and year over year.
These three ratings contribute to a poor overall VST rating of 0.67. So - what does that mean for investors interested in BABA? Is now the time to sell this stock, or is it a good opportunity to buy at a discount? Don’t play the guessing game or let emotion cloud your judgment - get a clear answer on your next move through a free stock analysis before you do anything else.
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VectorVest advocates buying safe, undervalued stocks, rising in price. Right now, BABA has fair safety, but poor upside potential and timing.
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