Is Alibaba (BABA) a Buy as Wall Street Analysts Look Optimistic?

Investors often turn to recommendations made by Wall Street analysts before making a Buy, Sell, or Hold decision about a stock. While media reports about rating changes by these brokerage-firm employed (or sell-side) analysts often affect a stock's price, do they really matter?Let's take a look at what these Wall Street heavyweights have to say about Alibaba (BABA) before we discuss the reliability of brokerage recommendations and how to use them to your advantage.Alibaba currently has an average brokerage recommendation (ABR) of 1.21, on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell, etc.) made by 19 brokerage firms. An ABR of 1.21 approximates between Strong Buy and Buy.Of the 19 recommendations that derive the current ABR, 17 are Strong Buy, representing 89.5% of all recommendations.Brokerage Recommendation Trends for BABACheck price target & stock forecast for Alibaba here>>>The ABR suggests buying Alibaba, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.Do you wonder why? As a result of the vested interest of brokerage firms in a stock they cover, their analysts tend to rate it with a strong positive bias. According to our research, brokerage firms assign five "Strong Buy" recommendations for every "Strong Sell" recommendation.This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.ABR Should Not Be Confused With Zacks RankAlthough both Zacks Rank and ABR are displayed in a range of 1-5, they are different measures altogether.Broker recommendations are the sole basis for calculating the ABR, which is typically displayed in decimals (such as 1.28). The Zacks Rank, on the other hand, is a quantitative model designed to harness the power of earnings estimate revisions. It is displayed in whole numbers -- 1 to 5.It has been and continues to be the case that analysts employed by brokerage firms are overly optimistic with their recommendations. Because of their employers' vested interests, these analysts issue more favorable ratings than their research would support, misguiding investors far more often than helping them.In contrast, the Zacks Rank is driven by earnings estimate revisions. And near-term stock price movements are strongly correlated with trends in earnings estimate revisions, according to empirical research.Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.Another key difference between the ABR and Zacks Rank is freshness. The ABR is not necessarily up-to-date when you look at it. But, since brokerage analysts keep revising their earnings estimates to account for a company's changing business trends, and their actions get reflected in the Zacks Rank quickly enough, it is always timely in indicating future price movements.Is BABA a Good Investment?In terms of earnings estimate revisions for Alibaba, the Zacks Consensus Estimate for the current year has remained unchanged over the past month at $9.30.Analysts' steady views regarding the company's earnings prospects, as indicated by an unchanged consensus estimate, could be a legitimate reason for the stock to perform in line with the broader market in the near term.The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Alibaba. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>It may therefore be prudent to be a little cautious with the Buy-equivalent ABR for Alibaba.Zacks Naming Top 10 Stocks for 2025Want to be tipped off early to our 10 top picks for the entirety of 2025?History suggests their performance could be sensational.From 2012 (when our Director of Research Sheraz Mian assumed responsibility for the portfolio) through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Now Sheraz is combing through 4,400 companies to handpick the best 10 tickers to buy and hold in 2025. Don’t miss your chance to get in on these stocks when they’re released on January 2.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Alibaba Group Holding Limited (BABA): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks