Apple Inc. (AAPL)vs Alibaba Group Holding Limited (BABA)

Quick verdict

Alibaba trades at 18.47 times trailing earnings against Apple's 34.92, roughly half the multiple, and at 1.96 times book against Apple's 41.81. It is unambiguously the cheaper stock. It is also the weaker business on every operating measure we can compare, earning a 3.17% return on invested capital against Apple's 51.87% and a 5.83% operating margin against 33.17%. Our framework scores Alibaba 3.5 and Apple 2.5, awarding Alibaba valuation, the balance sheet and income, and Apple growth and quality. Both companies have grown revenue slowly over three years, 2.74% for Alibaba and 6.43% for Apple, so neither is being bought for expansion.

2-year relative performance

At-a-glance comparison

Business model and revenue mix

Alibaba is classified under Specialty Retail within Consumer Cyclical, operating commerce and cloud platforms; Apple under Consumer Electronics within Technology. The most notable structural difference is margin composition. Alibaba's 39.81% gross margin is respectable but its 5.83% operating margin is not, which means the overwhelming majority of gross profit is consumed by operating costs before reaching operating income. Apple retains roughly two-thirds of its gross profit through to operating profit. Alibaba's beta of 0.51 is the lowest of any company Apple is compared against on this site, less than half Apple's 1.09, though this reflects a stock that has moved on factors specific to its own market rather than genuine defensiveness. Its 64.46% worst five-year drawdown against Apple's 33.43% shows the risk is real.

Valuation

Alibaba is materially cheaper on every multiple reported. It trades at 18.47 times trailing earnings against Apple's 34.92, 1.97 times sales against 9.63, 1.96 times book against 41.81, and 14.54 times EV/EBITDA against 26.93. Price-to-sales and price-to-book both sit near or below two, levels usually associated with businesses the market expects little from. Apple's free-cash-flow yield of 3.04% beats Alibaba's -2.57%, which is negative and therefore the one clear point against the value case: Alibaba's capital spending currently exceeds the cash its operations generate. A discount this wide typically prices in either poor prospects or risks the financial statements alone do not capture.

Growth profile

Apple takes the growth factor, and both figures are modest. Apple's revenue compounded at 6.43% a year over three years; Alibaba's at 2.74%. On earnings the divergence is wider and runs the same way: Apple grew EPS at 22.59% a year while Alibaba's declined 17.27%. Falling earnings at a company already trading at a low multiple can mean either that the discount is deserved or that the market has over-extrapolated a temporary decline. Our data cannot distinguish between those readings. What it does establish is that neither business is currently growing quickly, and that Apple has converted its slow revenue growth into meaningful earnings growth while Alibaba has not.

Profitability and quality

Apple wins this factor by a wide margin. Its 33.17% operating margin is nearly six times Alibaba's 5.83%, and its return on invested capital of 51.87% is over sixteen times Alibaba's 3.17%. Above roughly 15%, ROIC is generally read as evidence of a durable competitive advantage; Alibaba's 3.17% is far below that line and indicates a business currently earning little on the capital it employs. Return on equity is 137.18% against 10%, though Apple's figure is inflated by buybacks shrinking its equity base while Alibaba's 10% is a cleaner reading of underlying performance. On efficiency of capital deployment, these two companies are not close.

Balance-sheet risk

Alibaba has the safer balance sheet, though both are conservatively financed. Alibaba's current ratio of 1.28 covers near-term liabilities more comfortably than Apple's 1.00, which leaves current assets exactly matching current liabilities. Net debt sits at 0.6 times EBITDA for Alibaba against 0.27 for Apple, so Apple is the less leveraged of the two despite the weaker liquidity ratio. Alibaba's interest cover of 5.92 times is adequate without being generous. Neither company faces any realistic financing pressure, and the factor carries less weight here than the gulf in profitability. Lower leverage does give a company more room to invest through a downturn without diluting shareholders.

Price performance and shareholder returns

Apple has been the better holding across every window. It returned 31.11% over the past year while Alibaba lost 2.4%, and 12.89% year to date while Alibaba fell 20.5%. Over three years Apple annualised 19.74% against Alibaba's 9.29%, a narrower gap that reflects Alibaba recovering from a lower starting point. Alibaba has been the more punishing holding on the downside, with a 64.46% worst five-year drawdown against Apple's 33.43%. On income Alibaba yields 0.84% against Apple's 0.35%, so it returns more than twice as much cash relative to price, though neither figure would interest an income investor. Past performance never guarantees future results.

Which stock fits which investor

Value investors have the clearest case for Alibaba, at roughly half Apple's earnings multiple and a twentieth of its price-to-book. Income investors will note Alibaba's 0.84% yield exceeds Apple's 0.35%, though both are token. Growth and quality investors should prefer Apple, which grows faster and earns vastly more on its capital. The decision turns on a judgement our data cannot make for you: whether Alibaba's discount reflects a business whose returns will recover toward historical levels, or one whose 3.17% return on invested capital is the new normal. Apple asks you to pay a premium for a business whose economics are visible in every line of the income statement.

• Value: BABA
• Growth: AAPL
• Income: BABA
• Quality: AAPL

Frequently asked questions

Is Apple or Alibaba the better buy right now?

Alibaba scores 3.5 on our six-factor framework and Apple 2.5, winning valuation, balance sheet and income. Apple wins growth and quality. Alibaba is much the cheaper stock; Apple earns roughly sixteen times more on its invested capital.

Which stock is cheaper, AAPL or BABA?

Alibaba, on every multiple. It trades at 18.47 times trailing earnings against Apple's 34.92, 1.97 times sales against 9.63, 1.96 times book against 41.81, and 14.54 times EV/EBITDA against 26.93.

Which has grown faster, Apple or Alibaba?

Apple. Its three-year revenue CAGR is 6.43% against Alibaba's 2.74%, and its EPS compounded at 22.59% while Alibaba's declined 17.27%. Neither company is growing quickly, but Apple is the only one growing earnings.

Why is Alibaba's valuation so low?

Our data shows a business earning a 3.17% return on invested capital and a 5.83% operating margin, with earnings declining 17.27% a year over three years and a negative free-cash-flow yield of -2.57%. Whether the discount is deserved or excessive is a judgement the financial statements alone cannot settle.

Which pays the better dividend?

Alibaba, at 0.84% against Apple's 0.35% — more than twice as much. Neither would satisfy an income mandate, and both companies retain the large majority of their earnings rather than distributing them.

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