Analyst Sees 52% Upside for Alibaba Stock

The brokerage firm also called BABA a "top large cap pick"

Managing Editor
May 24, 2018 at 10:17 AM
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Alibaba Group Holding Ltd (NYSE:BABA) is up 0.5% to trade at $197.75, after Raymond James issued a price-target hike to $300 from $250 earlier this morning. The brokerage firm called the e-commerce giant its "top large cap pick," and expects BABA will be the "biggest winner" from more robust Chinese e-commerce growth.  

The $300 price target represents a 52% premium to the stock's current perch -- and sits in record-high territory. Since topping out at an all-time peak of $206.20 in late January, BABA has been stuck in a tight trading range. More recently, the shares have been churning just below the $200 level following an early May bull gap. Nevertheless, the equity has added more than 60% in the last 12 months, and is currently on track for a four-week winning streak -- its longest since last July. 

A short squeeze could give BABA even more room to run. Short interest is up 5.7% in the two most recent reporting periods to 126.28 million shares sold short -- the most since mid-January. This represents 10% of the security's total available float, and nearly nine days of pent-up buying power, at the stock's average trading volume. 

Skepticism has been building in the options pits, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the security's 10-day put/call volume ratio of 0.53 ranks in the elevated 90th percentile of its annual range. While this shows that calls are preferred on an absolute basis, puts have been bought to open at a much faster-than-usual clip during the past two weeks. An unwinding of these bearish bets could nudge BABA higher.

Whether traders want to bet on continued upside for BABA stock, or brace for a pullback, it's an opportune time to do so with options. The equity's Schaeffer's Volatility Index (SVI) of 26% ranks in the 8th percentile of its annual range, indicating premium on short-term strikes is relatively cheap at the moment, from a volatility standpoint.

In addition to a low SVI, the equity's Schaeffer's Volatility Scorecard (SVS) reading stands at a lofty 90 out of a possible 100. This means BABA has tended to make outsized moves relative to what the options market has priced in -- a boon to potential premium buyers.

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