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The price target was calculated for two competitors Alibaba and Ebay. We used the profitability, liquidity and
solvency ratios given in Table1 in the Appendix for our analysis of the two companies. It can be seen that
Alibaba performs better than Ebay in many parameters. Alibaba has a better financial position when compared
to Ebay and this can be seen from the higher Gross Profit Margin, revenues and net income. Also, the earnings
per share of Alibaba for the year 2014 is approximately five times that of Ebays. The higher quick ratio of
Alibaba shows better liquidity position for the company. In addition, higher current ratio of Alibaba proves
better financials. The target price for the two competitor companies was calculated by multiplying P/E and the
earnings per share. The P/E ratio which is the companys price per share divided by earnings per share is a
metric used by many investors. If the P/E ratio of the company is high the stock is expected to have higher
earnings growth in the future. The P/E ratio for Alibaba is $59.4 whereas Ebay has a P/E ratio of only $15.47.
This goes to show that Alibaba has good earnings growth potential in the future. The target price set for Alibaba
was $129.49 and that of Ebay was $28.310. During the monitoring period from November 30th to December 11th
initially both stocks had a slight increase in stock price value but later there was a slight drop in stock price
value for both of them. Despite the similarity in the stock price trend we recommend that you invest in the
Alibaba stock because our analysis of the financial data of both firms shows that the Alibaba firm is better
poised for future growth and higher profits.
Appendix
Profitability, Liquidity and Solvency ratios for Ebay and Alibaba
Table 1
Profitability
Gross Profit
Margin
Return on Asset
Asset Turnover
Earnings per share
Liquidity
Quick
Current Ratio
Solvency
Debt to Equity
Long-run Debt
ratio
Interest coverage
ratio
P/E Ratio Chart
2014
2013
Ebay
2012
67.98
%
0.11
0.41
2.95
68.42
%
7.27
0.41
2.69
70.04
%
8.1
0.44
2.35
70.30
%
13.09
0.47
2
71.99
%
8.91
0.45
1.69
0.21
0.60
0.13
0.62
0.09
10.61
3.66
1.71
0.62
1.51
0.79
1.84
1.13
1.96
0.98
1.88
1.57
2.45
0.88
1.81
1.27
1.80
1.43
2.37
0.38
0.17
0.22
0.12
0.12
0.04
1.4
N/A
N/A
0.49
N/A
N/A
N/A
N/A
N/A
0.28
0.15
0.18
0.1
0.1
0.38
0.63
N/A
N/A
29.71
35.66
49.95
157.21
584.55
17.10
36.61
17.81
4.52
N/A
2011
2010
2014
Alibaba
2013 2012
2011
74.5
%
71.8
%
67.3
%
70.6
%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2010
(Source: http://amigobulls.com/stocks/BABA/stockcharts)
Revenue Chart
(Source: http://amigobulls.com/stocks/BABA/stockcharts)
Earnings Chart
(Source: http://amigobulls.com/stocks/BABA/stockcharts)
(Source: http://amigobulls.com/stocks/BABA/stockcharts)
Profitability ratios, Liquidity ratios and Solvency ratios comparison for the last five years
Price Target Calculation
Table 2
Companies
Price to earnings ratio
Earnings per share consensus estimate
Alibaba
59.4
2.18
eBay
15.47
1.83
(Source: Data is obtained from Reuters projection on 27th November, 2015)
Price Target
129.49
28.31
Evaluating the stock performance of Alibaba and Ebay for the period between Nov 30th, 2015 to
December 11th, 2015
Table 3
Date
Stock Price of Alibaba
Stock Price of Ebay
November 30th,2015
$81.50
$29.09
December 3rd,2015
$85.05
$29.00
December 7th,2015
$84.80
$28.29
December 9th,2015
$84.37
$28.42
December 10th,2015
$83.34
$28.28
December 11th,2015
$82.84
$28.19
(Disclaimer: Data based on Yahoo finance historical prices, bought at market open)
Detailed Valuation Metrics for Alibaba
Table 4
Valuation Measures
Market Cap (intraday)5:
207.54B
3
196.90B
22.29
1
3.77
1.28
Price/Sales (ttm):
15.30
Price/Book (mrq):
6.89
14.67
44.15
Mar 31
Profitability
Profit Margin (ttm):
72.57%
27.53%
Management Effectiveness
Return on Assets (ttm):
5.28%
35.34%
Income Statement
Revenue (ttm):
13.42B
5.45
31.70%
8.45B
EBITDA (ttm)6:
4.46B
9.74B
3.78
651.50%
Balance Sheet
Total Cash (mrq):
16.84B
6.84
8.45B
24.23
2.83
12.11
7.91B
7.95B
Valuation Measures
Market Cap (intraday)5:
34.30B
36.16B
15.54
14.50
2.02
Price/Sales (ttm):
1.92
Price/Book (mrq):
5.25
2.04
7.40
Dec 31
Profitability
Profit Margin (ttm):
12.83%
19.21%
Management Effectiveness
Return on Assets (ttm):
6.77%
23.30%
Income Statement
Revenue (ttm):
17.70B
14.54
-2.40%
12.17B
EBITDA (ttm)6:
4.89B
3.06B
1.84
-19.90%
Balance Sheet
Total Cash (mrq):
5.30B
4.42
7.44B
114.59
1.87
5.40
4.63B
2.73B