Down 50% in 5 Years, Is Now the Time to Buy Alibaba Stock as Its Turnaround Progresses?

Alibaba (NYSE: BABA) shares have been in a downward spiral the past five years, with the stock cut in half during that time. However, the stock has stabilized this year and the Chinese e-commerce giant appears to being making progress in its turnaround.

Let's take a closer look at its most recent earnings and why the stock looks like a good investment at these levels after its big pullback.

Turnaround progressing

For its fiscal first quarter, Alibaba's revenue rose 4% to $33.5 billion. Adjusted earnings per ADS (American depositary share) fell 5% in the quarter to $2.26, while adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) slid 2% to $7 billion. Free cash flow came in at $2.4 billion.

On the surface, there is nothing to get excited about with those numbers.

Dipping a bit deeper, Alibaba's largest segment -- which consists of its e-commerce sites Taobao and Tmall -- saw revenue fall 1% to $15.6 billion. Orders grew by double-digits while gross merchandise value (GMV) rose by high single digits. Its segment EBITA (earnings before interest, taxes, and amortization) also fell 1%, coming in a $6.7 billion.

Alibaba said now that order and GMV growth has returned, the company is slowly increasing its monetization efforts, including through its new marketing tool Quanzhantui.

Its cloud intelligence group, meanwhile, saw revenue climb 6% to $3.7 billion. Artificial intelligence (AI) related revenue once again surged by triple-digits, as the company said more major customers were choosing Alibaba's infrastructure for AI development while its proprietary large language models were gaining wider adoption. The segment's adjusted EBITA, meanwhile, soared 155% to $322 million.

Alibaba's other segments were a mixed bag. For example, revenue for its international commerce retail business soared 32% to $4 billion, but its EBITA loss greatly widened as it makes investments into the business. Its Cainiao smart logistics network revenue rose 16% to $3.4 billion, powered by cross-border fulfillment services supporting international commerce, although its EBITA sank 30%. Alibaba believes these businesses will achieve "substantial profitability at scale in the future."

The company said that most of its businesses outside of e-commerce and cloud computing will turn profitable in a year or two and then begin contributing to profitability as they gain scale.

Image source: Getty Images.

Upside potential

While the headline numbers for Alibaba's most recent numbers don't stand out, there are signs of progress. Taobao and Tmall once again showed progress in stabilizing their market share as evidenced by the segment's order and GMV growth. While this did not translate into revenue or EBITA growth, the company will now have an opportunity to better monetize its e-commerce sites, its newly introduced advertising product, the introduction of a small technology service charge, and other monetization efforts.

Its cloud computing service, meanwhile, is starting to see revenue growth pick up, but more importantly the segment's profitably is greatly improving as low-margin project-based contracts roll off. This is still skewing overall revenue growth, but this segment is showing strong signs of improvement.

Meanwhile, Alibaba's international commerce and logistics network businesses continue to show impressive growth. Once these businesses reach scale, they should show solid profitability as well.

As investors continue to wait for Alibaba's turnaround to continue to unfold, they can buy shares at a very inexpensive valuation. Currently, the stock trades at a forward P/E of about 8.5 times based on 2025 analyst estimates, while it has a enterprise value -to-EBITDA multiple of less than 6 times. This latter metric takes into consideration the $50 billion in net cash Alibaba has on its balance sheet and takes out non-cash expenses.

BABA PE Ratio (Forward 1y) data by YCharts

Turning around a company the size of Alibaba takes time, but progress is being made. While its surface numbers may not show it, digging a bit under the surface reveals a company that is making progress. The company looks to be an AI winner in China through its cloud computing segment, while its e-commerce businesses have stabilized and appear ready to start growing.

Given its valuation and the progress it is making, I would be a buyer of the stock here.

Geoffrey Seiler has positions in Alibaba Group. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy .