Just about a year ago, investors were clamoring, awaiting the IPO that proved to be the largest in history. However, since Alibaba's IPO, quite a bit has changed. As a matter of fact, since November of last year, all we've seen from the stock has been losses. While I'd like to tell you that gains are coming soon, I have to be honest here; and that's simply not the case. The bottom line is that Alibaba is headed down the fast track to more declines. Today, we'll talk about a few factors that are likely to cause Alibaba to continue the downward trends as well as how binary options traders can take advantage of those trends. So, let's get right to it!
The Chinese Economy Is Struggling
Although Alibaba is trading on the US stock market, it's important to remember that the company is a Chinese company. This means that Alibaba is more susceptible to the Chinese economy than any other economy in the world. However, if you've been watching markets closely, you know that the Chinese market is struggling. As a matter of fact, the Chinese government recently made the decision to devalue the Chinese currency in an attempt to stimulate their economy. This simple fact is that Alibaba is the largest online marketplace in China, but with a struggling economy, it's almost a guarantee that the company's stock is going to struggle.
Alibaba Has A Very Poor Earnings History
One factor that I look at very closely when determining the future movement of any stock is the company's earnings history. Unfortunately for Alibaba, the company has an incredibly poor earnings history. As a matter of fact, according to NASDAQ, the company has missed earnings expectations for the past four consecutive quarters. That means that since Alibaba's IPO, it hasn't been able to generate earnings that were up to expectations. Here are the results from the last 4 quarters…
- August 12 – On August 12th, 2015, Alibaba reported $0.34 per share. Analysts expected $0.41 per share.
- May 7 – On May 7th, Alibaba reported $0.20 per share. Analysts expected $0.28 per share.
- January 29 – On January 29th, Alibaba reported $0.55 per share. Analysts expected $0.62 per share.
- November 4 – On November 4th, Alibaba reported $0.25 per share. Analysts expected $0.37 per share.
Incredibly High Valuation
Finally, Alibaba's valuation is incredibly high. As a matter of fact, the PE ratio on the stock is well over 50. Considering that a healthy stock trades with a PE between 14 and 17, that's incredibly high. However, no matter what valuation metric you look at, Alibaba is trading at a premium. Even the company's price to cash flow ratio is incredibly high; currently standing at 43.63. In terms of price to cash flow, a healthy stock maintains a ratio under 20.
How Binary Options Traders Can Profit From This Information
Knowing the information above is telling us that Alibaba is likely to see more declines, binary options traders can realize profits by purchasing put options. The idea here is to wait until the stock reaches resistance. From there, traders should purchase put options to ride the trends down to profit.
What Do You Think?
Where do you think Alibaba is headed and why? Let us know in the comments below!
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