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As the market braces for Alibaba to report earnings for the first time since the launch of its massive IPO, Jim Cramer thinks the stars have aligned and investors will pay big bucks for it.
Alibaba closed up more than 3 percent on Monday, and Cramer knows there is only one reason why a stock would run up so fast right before earnings. This means that the earnings estimates that the company set are just too low, and they are getting ready to knock it out of the park.
"Alibaba is Amazon on steroids, except unlike Amazon, it's extremely profitable. Therefore, the sky might be the limit for what any Amazon holder might be willing to pay for Alibaba in comparison, " said the "Mad Money" host.
The main difference between Alibaba and Amazon is that the China-based Internet company has been able to create a significant presence in under-retailed China. There are significantly fewer stores in China than there are in the U.S. Yet, Alibaba reported 188 million monthly active users in China.
Given that only half of people in China are even online, it is clear why analysts are predicting a 40 percent compound annual growth for the next few years. In Cramer's opinion, Alibaba has barely even scratched the surface in China.
Technically we do not know what Alibaba will report. However with a 40 percent growth rate forecast, it could mean that portfolio managers will be willing to pay for the stock in spades.
"If you are potentially dealing with the fastest growing large cap company on Earth, don't you have to give it the highest price-to-earnings multiple?" Cramer said.
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The "Mad Money" host thinks that if Alibaba guides up for the future, then investors will be willing to pay at least 80 times the 2016 numbers. That's roughly $296, before the revision up.
That might be expensive, but the bottom line is that Cramer bets that portfolio managers are willing to fork out the dough because they believe that these growth numbers are conservative.
Cramer knows if managers are already foaming at the mouth and ready to pay high price when they don't even know what the earnings will be, this stock is only just beginning to head higher.
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