The proven Zacks Rank is great method for both beginning and experienced investors to identify the strongest stocks to buy. The model, which emphasizes earnings estimates and estimate revisions, discovers companies of all shapes and sizes that are displaying the right characteristics to beat the market.
When a stock earns the coveted Zacks Rank #1 (Strong Buy), it is poised to provide superior returns over the next one to three months. Of course, achieving this ideal rank is no easy task. Of the thousands of companies tracked by Zacks, only about 5% earn this designation.
In the story below, you will learn about one particular company that helped show the strength of the Zacks Rank. If investors had followed our ranking system when it flagged this e-commerce king, they would have witnessed massive profits.
Alibaba Group Holding Limited (BABA - Free Report)
Alibaba is one of the world’s largest e-commerce marketplaces, operating China’s premier wholesale online shopping platform. The internet behemoth is also a major force in the global retail sector, as well as a budding growth opportunity in industries like financial services, smart vehicles, artificial intelligence, and digital media.
BABA was a fixture of the Zacks Rank #1 (Strong Buy) list throughout 2017, first earning the rank on Feb. 3. The company benefitted from positive analyst sentiment on the back of its strong earnings report for the quarter ended Dec. 31, 2016. Alibaba reported revenues of $7.67 billion, beating our consensus estimate of $7.48 billion and improving 54% on a year-over-year basis. Adjusted earnings per share of $1.30 also beat the Zacks Consensus Estimate of $1.04.
Alibaba also notched impressive growth rates in several key divisions. For example, the company saw revenues in its cloud computing and digital media units grow 115% and 273%, respectively. Alibaba also inspired positive estimate revisions by adjusting its own full-year guidance from revenue growth of 48% to revenue growth of 54%. BABA held its first Zacks Rank #1 (Strong Buy) of 2017 for eight-consecutive weeks.
The stock was once again added to the Zacks Rank #1 (Strong Buy) list on June 16, 2017. BABA held this ranking for another eight weeks. By this day, BABA was already up about 35% since it first earned the strong-buy designation. This time around, the company witnessed positive estimate revisions after raising its full-year 2018 guidance during its annual investor conference. At an event in Hangzhou, Alibaba Chief Financial Officer Maggie Wu revealed that the expected revenue growth of 45% to 49% in the fiscal year. Our consensus estimates prior to the event were calling for revenue growth of just 31%.
BABA earned a Zacks Rank #1 (Strong Buy) one more time on December 22. The stock was up almost 75% since Feb. 2. at this point. Analysts were likely excited about the company’s record-breaking Singles’ Day sales, as just a few weeks prior, Alibaba said that revenues during the one-day shopping holiday grew 40% year over year. Around the same time, Alibaba announced a new partnership with Ford (F - Free Report) to bring electric vehicles to China and inked deals for its video streaming service, Youku Tudou, to bring major motion pictures to the platform.
The below chart demonstrates the price performance for BABA and 12-month forward looking EPS estimate (in red), starting from the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, BABA never moved lower than a Zacks Rank #3 (Hold).
As we can see, BABA was a huge winner for those that followed the Zacks Rank. The stock is currently up more than 85% since earning a Zacks Rank #1 (Strong Buy) last year. Investors should know that our model is the simplest way to identify elite stocks poised to beat the market on a consistent basis.
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