Is Alibaba (9988.HK) a value stock or a trap? Revenue at the Chinese company's core e-commerce business grew a dismal 2% year-on-year in the December quarter and its plans to list its logistics and retail units have stalled on the back of a broader selloff in Chinese equities. The company is responding by increasing its share buyback program by another $25 billion, bringing the total available to a whopping $35.3 billion over the next three fiscal years.
Alibaba Chairman Joe Tsai was quick to point out that if the company deploys $12 billion a year in repurchases - equivalent to a roughly 3% annual reduction of its share count - the stock can yield 4.5% including dividends. "It's like you bought a 10-year Treasury bond with the upside of stock price appreciation," he declared. Based on Alibaba's current market value and assuming a stable dividend, analysts at JPMorgan forecast the stock can yield as much as 7%.
Investors are not convinced. Alibaba's New York shares tumbled 5.9% on the results; the company now trades on less than 9 times forecast next 12 month's earnings, LSEG data shows, far below the average of 17.5 times over the past five years. With Alibaba's chaotic restructuring and dimming outlook, its easy to see why investors are looking the other way. (By Robyn Mak)
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