One day, Alibaba is at work collecting and cutting firewood in the forest, when he happens to overhear a group of 40 thieves visiting their treasure store. The treasure is in a cave, the mouth of which is sealed by a huge rock. It opens on the magic words "open sesame" and seals itself on the words "close sesame". When the thieves are gone, Alibaba enters the cave himself and discreetly takes a single bag of gold coins home.
Well, I did found a "Treasure Cave" through my investment journey in 2017. The cave called "Alibaba", a NYSE stock listing with ticker "BABA". I got interested in this stock after watching their single day gala 11.11 events. Since listing in 2014 around $100, this stock hovered below $100 for sometime in 2017.
I noticed this company has a very high growth rate >50%. It had been very consistent in net profit growth year over year. The characteristic I like about this company is the business model and the economic moat they build around their core business. Their business model which focus on B2B and B2C online e-commerce are the future trend with great potential for multi year growth. Looking at what Amazon did to US marketplace, you know Alibaba's valuation is compelling. Alibaba has a strong economic moat which no one else can challenge their dominance for very long time. They are no.1 in China and the next biggest competitor is miles apart in comparison and not profitable.
So making the story short, the quality attributes that I like about Alibaba are:
1. Right business model at right market trend
2. strong economic moat - King of the jungle
3. high growth rate, >50%
4. Low PEG ratio <1.0
5. Very profitable, positive cash flow
I know Alibaba is unappreciated by the market and I should grab this opportunity uncovered this "Treasure Cave" before others do. I started buying Alibaba (Shout "Open Sesame") when it dipped below $100 and continue to accumulate more along the way. The share price continued to move in upward trend as they started releasing positive results and forecasts in their quarterly earning.
I set my exit plan in motion when the share price hit above $170 to $180. I felt the share price had risen so much that it had outrun its potential earning growth. The PE ratio expanded too fast. It was time to sell and looked for other "Treasure Cave". So, i finally called for "Close Sesame" by the end of Nov 2017.
With the share price increase almost 100% since I first started investing, I make a nice return on my investment for a period of 10 months. This was one of my best "treasure Cave" I ever discovered for that year.
- WILLIAM CHENG WL
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