BABA

We rate Alibaba Group Holding Ltd (BABA) as a Buy with a composite score of 69.6/100 at a current price of $153.38. The stock scores above average across the majority of our six quantitative factors and ranks #104 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (88th percentile) and momentum (79th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (67/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Alibaba Group Holding Ltd holds a top-quartile position (#11 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 69.6/100 places it at rank #104 in our full 7,333-stock universe. As a mega-cap company with a $316.5B market capitalization, Alibaba Group Holding Ltd benefits from significant scale, distribution networks, and brand recognition that smaller competitors cannot easily replicate.

The outlook is moderately positive, with revenue expanding at 5% and favorable momentum (79th percentile) reflecting constructive market sentiment. The business shows steady execution, though the growth rate is below the levels typically associated with high-conviction growth stories. Momentum confirmation provides support for the current price level.

The margin cascade tells an important story: gross margins of 40% (-19.6pp vs sector) narrow to operating margins of 14% (+10.6pp vs sector) and net margins of 12.6%, yielding a gross-to-net conversion rate of 32%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $153.38, Alibaba Group Holding Ltd appears undervalued relative to its fundamentals. Our value factor score of 88/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 160.9x (a 578% premium to the sector median of 23.7x), EV/EBITDA of 3.7x (discounted to peers), P/B of 2.6x, P/S of 0.7x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Low uncertainty rating to Alibaba Group Holding Ltd. The company exhibits strong financial stability with a beta of 0.87, conservative leverage (23% D/E), and a stability factor in the 70th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 160.9x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 70th percentile and quality factor at the 77th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: conservative leverage (23% D/E) limits balance sheet risk; above-average stability (70th percentile) suggests predictable business dynamics; large-cap scale ($316.5B) provides resilience. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Alibaba Group Holding Ltd's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 49.9%, disciplined leverage (23% D/E), a 2.05% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — Alibaba Group Holding Ltd meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 2.05% dividend yield, and the combination of 27.9% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, Alibaba Group Holding Ltd receives a Buy rating with a composite score of 69.6/100 (rank #104 of 7,333). Our quantitative framework assigns a Narrow Moat (67/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 74/100.

Our analysis supports a constructive view on Alibaba Group Holding Ltd. The combination of identifiable competitive advantages, low uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.