Global Source (GSOL) is the best way to play Alibaba seeing how most investors do not have access to the Hong Kong market and what is turning out to be the most heavily anticipated IPO of the year after (VMWare aside).
As all of you no doubt have noticed, Alibaba is set to start trading November 6th. The books closed earlier than scheduled in Asia and the U.S. NO surprise that it is MASSVILY oversubscribed and will no doubt price at the top of the range 13.50 HK dollars if not higher ($1.74 USD).
Enough about Alibaba and the price numbers for now and consider the P/E ratios and where Global source fits into the pie. Alibaba’s P/E multiple is currently at 55 2008 earnings. Global Sources P/E is at 34!!! That is unbelievably cheap considering it is a Chinese growth stock that is also in B2B business. A great comparison to Alibaba. Hey its even got 10% of the B2B market, while Alibaba dominates with 70% mkt share. Hummm.
http://online.wsj.com/article/SB119360839052074184.html?mod=hps_asia_whats_news
Earlier this week on CNBC David Faber gave a break down of the Alibaba deal and as soon as he mentioned Global Source, the stock took off. Now, Global source has already been on a tear since it has been mentioned in releases tied to Alibaba Oct 5th. Now, chances are (as David Faber so delicately put it) Alibaba will probably open in the high 20’s (HK Dollars).
http://www.cnbc.com/id/15840232?video=573782444
This will award it a 110 P/E!!!!. BIDU has a P/E of 83 (210 trailing PE) and you have witnessed its ascent! Give that global sources P/E is significantly lower than Alibabas and Bidus, Global Source could easily command one at 100. This would easily give it a 10-15 point upside. Listen, it is a volatile market where speculation is the name of the game and a move like this is not beyond any stretch of the imagination.
If you’re still not convinced, there is a recent article that will appear in tomorrows Wall Street Journal underlying investor’s appetite for China. E-House P/E 87, Home Inns & Hotels P/E 250, Longtop Financial P/E 85, and the Solar’s Yingli and LDK both TRIPLED since their IPO. If Alibaba does anything like these Chinese mentioned Issues than I suspect it reaching a P/E vastly higher than 110.
http://online.wsj.com/article/SB119360779520974156.html?mod=hps_asia_whats_news
Watch it rise, or take part in the profit. Either way, it’s an interesting trade. Would not be surprised if one of the trading masters, or what ever you want to call them on Fast Money, or even our wacky friend Jim Cramer (recommended it 10/17/2007) brings up Global Source. The odds are in your favor. Risk/Reward is high, and downside is not that much. It’s got a low float, NO DEBT, $4 a share in Cash. It has a 104% Net Income growth and 39.5% sales growth over the past year. And, if you read through their reports you’ll see that they are poised for further growth with their sourcing fairs. Yes, I am long the position; I have been since the beginning of October and after rereading this post, I might just hang on the Global Source for a much longer time. Think about it.
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