$BABA Alibaba - the madness of crowds
$BABA (Alibaba) shares traded up 3.25% to $103.29. It has a market cap of $249bn. It's annual revenues for 12 m/e 31 march 2014 was 52.504bm CNY (8.45b USD). That gives it a PSR of around 30. Doesn't it occur to investors that a $249nb company cannot legitimately grow at rates which justify a price to sales ratio of 30?
Revenues were 11.9bn CNY for 12m/e 31 march 2011. That's an annualised growth rate of 64%. Has no-one reflected on the sheer improbability of this for such a large company?
Alibaba is a China-based online and mobile commerce company. Valuewalk recently posted an article ( http://bit.ly/1yMZ2vj ) saying that BABA was in talks to buy a stake in an insurer. Why is an e-commerce website buying an insurance website? It's a rhetorical question. The answer is: none at all. All other answers are wrong.
Investors are going to get burned. Badly. There is no other possible outcome. If I were Yahoo, I'd start offloading.
What we are seeing here is the utter insanity of crowds.
$103.29
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1 comment
Ah, there's so many things that could be said about BABA. Like ...
* it's Chinese - seriously - has the market not learned its lessons about Chinese companies by now?
* legal structure - you're owning a part of a shell, not the assets themselves
* excessive pontiifications by Jack Ma
* claims that it may still be undervalued (at a PSR of 30 - really?)
This from the FT on 7 September 2014 (http://is.gd/Uraj49): "They create an organisation where fanatical loyalty is most prized, with arcane rituals, purges, and even funny hats. ... In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world ... They [Alibaba] are reckless with ambition, they are radical and aggressive. Everyone walks out of a meeting room beet-red from shouting, that’s how we held meetings – with our voices raised. Its very intense". This just seems like hubris on a grand scale.
Take a look at receivables to revenues. For 12 m/e 31 Mar 2012, they were 7.2%. For 2013 they were 14.4%. For the latest year, they were 30.6%. This seems typical Chinese company accounting M.O., and a huge red flag.
Aren't analysts even slightly concerned about what this all means? Apparently not. Tipranks weights analyst opinions as a "strong buy", with 26 analysts saying "buy", 3 "hold", and 0 "sell".
Having said that, I did pass on the Google IPO, figuring that it was likely overvalued, so what would I know?