The trading in Alibaba Group (NYSE:BABA) stock since its 2014 initial public offering has been interesting. Alibaba stock basically has had only two sustained rallies.

Source: Shutterstock

Shares bottomed in early 2016, along with the market as a whole and zoomed higher until late 2017. BABA stock tripled over that stretch. The stock now has gained almost 50% from its late May lows and over 30% since pulling back in early October.

Other than those two moves, BABA has spent its five-plus years on the public markets trading basically sideways at best. In fact, it took this sharp recent rally for Alibaba stock to surpass mid-2018 peaks and reach a new all-time high.

At these levels, there is a case to take profits, as Josh Enomoto detailed last week. The U.S.-China trade war has thawed, but seems far from over. Long-running worries about the Chinese economy and government persist. I’ve personally long been a skeptic toward Alibaba stock, and I’m not ready to reverse field just yet.

That said, I’ve also argued that bulls can (and do) see BABA stock very differently, with some justification. Even after the gains of the past few months, it’s hard to see why BABA bulls are going to change their minds. The 2016 rally lasted longer than skeptics believed it would. The rally that begin in 2018 may well do the same.

What’s Changed for BABA Stock?

Other than valuation, nothing’s really changed during the rally in Alibaba stock. The broad strokes of the bull case remain the same and might even be strengthened.

Alibaba is the dominant e-commerce play in one of the world’s two largest countries. JD.com (NASDAQ:JD) and Pinduoduo (NASDAQ:PDD) are trying to take market share, but there’s been little sign of Alibaba’s lead shrinking at all.

Pinduoduo likely has pulled some sales from Alibaba, particularly in smaller cities. Its third-quarter revenue rose 123% year-over-year, against 40% growth for Alibaba in the same period. But over the past twelve months, Pinduoduo’s sales are barely one-twentieth that of Alibaba; Alibaba remains comfortably ahead of both of its primary retail rivals. And it’s targeting Pinduoduo’s core markets in a bid to slow the growth of its smaller rival.

Meanwhile, U.S. retailers like Amazon.com (NASDAQ:AMZN) have been unable to crack the market, even with a partnership between heavyweights JD and Walmart (NYSE:WMT). A bear thesis centered on competition seems tough to support at the moment.

The opportunity in cloud remains expansive. Alibaba has room to expand beyond China, with its Ant Financial affiliate last week applying for a digital banking license in Singapore. Alibaba’s Youku Tudou sits in third place between iQiyi (NASDAQ:IQ) and Tencent Holdings’ (OTCMKTS:TCEHY) Tencent Video in streaming, but still has solid market share.

The case for Alibaba stock always has been relatively simple: ignore the noise, and own one of the best businesses in China. That hasn’t changed. And while BABA stock is more expensive, a roughly 25-times multiple to the fiscal 2021 consensus earnings per share estimate isn’t exactly onerous. BABA still is cheaper on a relative basis than many mega-capitalization U.S. names. And to bulls at least, it has a much greater growth opportunity looking forward.

Have the Risks Been Mitigated for Alibaba Stock?

To be sure, most bullish investors and analysts would admit that there are risks here. China, for all its opportunity, remains an emerging market. Its government remains single party and nominally communist. Investors reasonably could, and do, pay a premium for the relative safety of large-cap names based in the U.S. and Europe.

But even the risks seem potentially mitigated by recent developments. China’s economy slowed in 2019 amid the trade war fallout, yet there was little, if any, sign of pressure on Alibaba’s results.

The listing of Alibaba stock on the Hong Kong Stock Exchange allows investors to bypass the VIE (variable interest entity) structure of the U.S.-listed version. Trading between the two listings shows that investors on the whole see VIE risk as minimal: the spread between the two is roughly 0.5% at their respective closing prices on Tuesday.

Again, risks remain. But, much like the bull case, the bear case is basically what it was six months ago (or three years ago, for that matter), and perhaps weaker. Investors who owned BABA stock in May 2019 or February 2018 really aren’t going to see the situation as all that much different in January 2020. And so, it’s difficult to argue that Alibaba stock suddenly is going to reverse barring a significant catalyst.

The Rally Can Continue

It’s possible that catalyst shows up or that Alibaba stock simply finds a way to reverse or stall out anyway. After all, the 2019 rally hasn’t had a single obvious driver. Even the trade war progress seems minimal, and U.S. and Chinese stocks gained as the dispute dragged on in the summer and fall.

But the simple way to look at Alibaba stock right now is that the status quo should hold, both in terms of the company’s growth and the external environment. At 25-times earnings in this market, this suggests the stock still could find more buyers.

We’ve seen this rally once before, and it lasted almost two years. Even though I’m not convinced BABA stock should keep gaining, I’d be far from surprised if it failed to do so through 2020 at least.

As of this writing, Vince Martin has no positions in any securities mentioned.