Investors’ attention is locked onto the dip in Alibaba BABA and Walmart‘s WMT stock after their quarterly reports unveiled a decline in their stock prices.
Alibaba and Walmart’s stock concluded today’s trading session down 8% and 9% respectively, prompting the question if the recent downturn presents an opportunity to invest.
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Alibaba’s Q2 Earnings Report
The plunge in Alibaba shares today was primarily due to the announcement that the company would not be spinning off its Cloud Intelligence Group into a separate IPO as many investors had hoped. Nevertheless, Alibaba outperformed its fiscal second quarter earnings, with EPS at $2.14 per share, exceeding the Zacks Consensus even though sales of $30.81 billion slightly missed estimates of $31 billion. Year over year, Q2 earnings rose 17% with sales rising 6% from the comparative quarter.
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Walmart’s Q3 Earnings Report
After Target’s TGT impressive third quarter earnings report on Wednesday, Walmart’s Q3 results were underwhelming. Walmart reached its Q3 earnings expectations of $1.53 per share, but this performance paled in comparison to Target’s 42% EPS surprise on earnings of $2.10 a share. However, Walmart managed to surpass top-line estimates, with Q3 sales of $160.8 billion slightly surpassing estimates of $159.48 billion.
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Current Valuations
Alibaba’s stock merits consideration as it appears undervalued after the recent selloff. Currently trading at a 9.8X forward earnings multiple, Alibaba’s stock presents a significant discount to the Zacks Internet-Commerce Markets’ 32.8X and the S&P 500’s 19.7X. Moreover, it trades well below its historical high of 66.6X and at a 73% discount to the median of 36.2X.
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Walmart’s stock trades at 26.3X forward earnings, which is near the Zacks Retail-Supermarkets’ 23.8X and not at a stretched premium to the benchmark. It also trades below its own decade-long high of 28.1X, but above the median of 20.2X.
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Key Takeaway
Experiencing their largest percentage declines in over a year, buying the dip in Alibaba and Walmart’s stock is certainly tempting with reasonable valuations as the hectic holiday season approaches. Both stocks currently hold a Zacks Rank #3 (Hold), and the upside in their shares may largely depend on the trend of earnings estimate revisions in the following weeks.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
