Should You Buy Alibaba Stock Before Feb. 19?

Alibaba Group (NYSE: BABA) stock has experienced a dramatic recovery over the last year. The geopolitical concerns that weighed on the stock earlier in the decade have eased somewhat, and the return of Jack Ma to the company has bolstered investor confidence.

Now, Alibaba will announce its earnings for the December quarter of 2025 on or around Feb. 19, and the business update presents investors with a difficult question. Should they add shares before the report, or could the news from the report endanger the rally?

Image source: Alibaba Group.

Alibaba has delivered mixed signals to investors

A look at the company's recent earnings history might not be much of a help to prospective investors. Alibaba's earnings fell short of estimates in three of the last four quarters, though the last earnings beat came in last year's December quarter.

Moreover, Alibaba stock rallied by around 45% over the last year. Still, most of that gain occurred between late August and early October of last year, indicating the report from its June-ended quarter sparked the rally.

Still, the strong AI-driven growth that it mentioned might be less meaningful in an environment where investors have questioned the recent increases in AI stocks.

The latest company financials offer both hope and disappointment. In the first six months of fiscal 2025 (ended Sept. 30), cloud revenue rose by 30% year over year, while its two e-commerce segments increased by 12% and 14%, respectively, over the last year.

Unfortunately, its smaller business experienced a 27% decline in revenue. That meant overall revenue during the period rose by just 3% annually to almost $70 billion.

However, Alibaba stock sells at a P/E ratio of 22. That is significantly less than Amazon at 28 times earnings or its Southeast Asian peer, Sea Limited, which trades at a 47 P/E ratio. Still, considering that Alibaba's P/E ratio was 12 last summer, the stock might appear less attractive in today's trading environment.

Should investors buy Alibaba stock before earnings?

Given the business conditions, financials, and the stock performance of Alibaba, investors should probably refrain from adding shares before the earnings report.

Indeed, the stock's outlook has improved significantly from last summer, and the double-digit revenue growth for its e-commerce and cloud segments appears encouraging. Also, its 22 P/E ratio appears inexpensive compared to its peers.

Still, lessened geopolitical concerns do not mean those worries have disappeared entirely. Considering that Amazon sells for 28 times earnings, its less volatile business environment could make it a more attractive choice.

Finally, investors should keep the three earnings misses over the last year in mind. With the company's history of falling short of such estimates, the stock is more likely to fall than rise following its report.

Will Healy has positions in Sea Limited. The Motley Fool has positions in and recommends Amazon and Sea Limited. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.