Buffett Brain · Research note
Score updated 29 Oct 2026 · analysis from 2 Jun 2026
BABA· Consumer Discretionary
Alibaba
Alibaba looks dirt cheap at 2.5 times earnings, until you notice free cash flow runs at negative 49 percent of net income.
Buffett fit
Weak fit
Owner
22
Durability
79
Management
43
Price
45
Score updated 29 Oct 2026 · analysis from 2 Jun 2026
Buffett's checklist
Each number against Buffett's bar, and where it ranks among Consumer Discretionary stocks in our database.
How much profit the business makes on each dollar invested in it. Higher is better.
What is left of each sale after the cost of making the product. A high number often means pricing power.
The cash the business earns for its owners, compared with the price of the whole company.
How fast sales grew each year over the last five years.
How many years of today's profit you pay for at today's price. Lower means cheaper.
How much the company owes compared with what it owns outright. Lower is safer.
The four pillars
How the business measures up on each of Buffett's four tests.
If I owned all of Alibaba, the first thing I would notice is that the business is not handing me cash.
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There is a real network here, and the durability score of 79 reflects the simple fact that hundreds of millions of Chinese still shop on these platforms.
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Management has been buying back stock, shrinking the share count about 3.7 percent a year, and that is the right instinct when you believe your own shares are cheap.
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This is where the story falls apart. The headline of 2.5 and the earnings yield of 39.8 percent look like a gift, but they are flattered by one-time gains, not the cash the business produces.
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For and against
The strongest points on each side, with the numbers behind them.
In its favor
7- 1Wide network on Taobao and Tmall supports a durability score of 79, well above the score of 22.
- 2Reported earnings yield of 39.8 percent and a trailing of just 2.5, optically among the cheapest large caps anywhere.
- 3Management is shrinking the share count by about 3.7 percent a year, a shareholder-friendly use of cash.
- 4Conservative balance sheet, with of only 0.25 and net debt to EBITDA of 0.6.
Concerns
7- 1Valuation is a trap: the headline 2.5 hides a negative owner-earnings yield of minus 2.56 percent and an EV to of 35 times, so the business is expensive on the cash that actually matters.
- 2 is only negative 49 percent of net income, meaning reported profit is not converting into owner cash at all.
- 3 has collapsed to 3.2 percent this year, far below the 7.3 percent five-year average.
- 4 has thinned to 5.8 percent under competitive pressure, dragging the score to just 22.
Price history
$101-38.8%· 5-year return
Weekly closing prices. Touch or hover the line for a date.
The business
How the business works
Alibaba earns its money mostly from Chinese commerce, taking a cut of merchant sales and advertising on Taobao and Tmall, with cloud computing and a grab-bag of other ventures alongside. The of about 39.8 percent is respectable, but the has thinned to just 5.8 percent, which tells you the company is spending heavily to defend its turf and feed money-losing limbs. Revenue has crept along at roughly 4.7 percent a year, pedestrian for a business once sold as a growth engine.
How this analysis has moved
The call has held across 6 reviews.
Sep 27, 2026 → Oct 29, 2026
What other investors would say
The same company, judged by three other documented playbooks.
Keep researching
Similar companies in Consumer Discretionary
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