The decline in shares of Alibaba BABA and Walmart’s WMT could draw investors’ attention after both companies reported quarterly results on Thursday.
Shares of Alibaba and Walmart ended today’s trading session down 8% and 9%, respectively, but let’s look at their quarterly reports and current valuations to see if the declines represent a buying opportunity.
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Alibaba’s Q2 review
There are cases where today’s selloff in Alibaba shares was overblown, as it was largely attributed to news that the e-commerce giant would not spin off its Cloud Intelligence Group in a separate IPO, as many investors had expected.
Still, Alibaba beat its fiscal second-quarter earnings expectations with earnings per share of $2.14, 1% ahead of the Zacks Consensus, although revenue of $30.81 billion beat estimates of $31 billion easily missed. Year-over-year, second-quarter earnings increased 17%, while revenue increased 6% compared to the comparable quarter. What’s notable is that following today’s EPS surprise, Alibaba has now beaten earnings expectations for eight quarters in a row.
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Walmart’s Q3 review
After Target’s third-quarter TGT earnings report came in far better than expected on Wednesday, investors were disappointed by Walmart’s Q3 results. Walmart managed to meet its Q3 earnings expectations of $1.53 per share, but that wasn’t as impressive as Target’s surprise of 42% EPS on earnings of $2.10 per share.
However, unlike its omnichannel competitor Target, Walmart was able to beat sales estimates. Walmart’s third-quarter revenue came in at $160.8 billion, slightly above estimates of $159.48 billion. Compared to the same quarter last year, Walmart’s third-quarter earnings rose 3% and sales rose 5%, but disappointing guidance for 5% to 5.5% sales growth in the fourth quarter triggered the sell-off in WMT shares.
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Current Ratings
Alibaba shares have lost some of their momentum and excitement in recent years, but after Thursday’s sell-off there is a strong case to be made that it is undervalued. Currently, Alibaba’s stock is trading at a significant discount to the Zacks Internet-Commerce Markets’ 32.8x and the S&P 500’s 19.7x with a forward earnings multiple of 9.8. What’s more interesting is that Alibaba stock is trading well below its all-time high of 66.6X and at a 73% discount to the median of 36.2X.
The story goes on
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Walmart’s stock trades at 26.3 times forward earnings, which is close to Zacks Retail Supermarket’s 23.8 times and not at an exaggerated premium to the benchmark. Walmart stock is also trading below its own decade high of 28.1X but above the median of 20.2X.
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Bring away
With shares of Alibaba and Walmart posting their biggest percentage decline in over a year, buying Alibaba and Walmart shares at reasonable valuations is certainly tempting as the busy holiday season approaches. Currently, both stocks earn a Zacks Rank #3 (Hold) as the upside potential of Alibaba and Walmart shares could largely depend on the trend of earnings estimate revisions in the following weeks.
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