Will ‘BABA’ bottom mirror Facebook’s about-face?

Published Wed, Mar 18 20151:04 PM EDT

Alibaba, whose shares are down 30 percent since reaching a high of $120 in November, may be about to bottom, if its stock follows the same trading pattern as Facebook following that giant technology IPO. A six-month period prohibiting insiders from selling Alibaba stock is set to expire Wednesday, allowing holders to unload 437 million shares, or about 18 percent of the total shares outstanding. Following a debut last year where it was valued at $25 billion—the biggest IPO ever for U.S. markets—investors' appetite for the Chinese e-commerce company quickly dwindled, in part because traders expect that large supply of insider shares to weigh on the stock. They felt the same way about Facebook back in 2012 following the social network's debut. Shares plunged 53 percent to a low of $17.73 within three months of going public at $38 a share. Yet, as several insider lockup expiration dates passed, Facebook shares bottomed and never looked back. Source: FactSet The supply fears were overblown and Facebook's stock quadrupled from a bottom just after the first major expiration in September 2012 through this week. Alibaba went public at $68 a share on Sept. 19 and the stock jumped more than 75 percent to that record high of $120 within a two-month period. Read More The 'bottoms-up' stock picker is dead As the insider selling abates, investors may find BABA shares offer a compelling valuation. The stock currently trades at 30 times the next 12-month earnings compared to price-earnings ratios of 25 for Baidu , 18 for eBay and 543 for Amazon . The company is currently rated a "buy" among 36 financial analysts, who have a mean price target of $110.38, according to FactSet. That's exactly what happened to Facebook as the drop in the shares took its forward P/E down to 31 at that 2012 bottom. "Alibaba's multiples now stand out relative to Amazon's 19x EBITDA (cash flow) and 103x Non-GAAP EPS multiples with Alibaba growing at more than 2x Amazon's rate," wrote Stifel in a note on Monday. The firm upgraded Alibaba to "buy" from "hold" and slapped a $99 12-month price target on the stock. Alibaba shares are up just 5 percent from their low this year reached on March 3, and remain 23 percent above their IPO price.