Alibaba (BABA) Stock Has NOT Ba-Ba-Bottomed

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Alibaba Group Holding Ltd (BABA) stock has had a rough go of it since its initial public offering a year ago at $68 a share — an offering price that was raised several times in the weeks before its Wall Street debut.

Alibaba (BABA) Stock Has NOT Ba-Ba-BottomedAt the time, the main concerns surrounding BABA stock were its glaring corporate governance issues and its optimistic valuation.

Don’t get it twisted, both are still clouds hanging over the stock, but today most fears rightfully center around the uncertainty in the China stock market.

Oh, I almost forgot: There’s an epidemic of counterfeit goods being sold on BABA sites, fierce competition is pummeling growth rates and there’s new evidence that the Chinese consumer is in serious trouble.

Needless to say, these concerns are real enough that serious investors should stay far, far away from BABA stock.

The Newest, Most Ominous Signal

Late Tuesday, Yum! Brands (YUM) released quarterly earnings, and they were downright horrendous. The company — which operates fast-food chains including KFC, Taco Bell and Pizza Hut — has massive exposure to China.

Same-store sales growth in China came in at 2%, missing analyst expectations for 9.6% by a mile and a half. I see this as an enormously bearish indicator for BABA stock. Think about it, if Chinese consumers can’t afford to splurge on fried chicken, do you think they’ll be snapping up Gucci purses by the dozen? Don’t kid yourself.

Even setting aside the increasingly fragile state of the Chinese economy, BABA is rapidly losing the trust of the consumer. Yesterday, the American Apparel and Footwear Association became the latest to accuse Alibaba’s e-commerce platform, Taobao, of selling counterfeit goods.

That’s not the only problem staring down BABA stock owners, even in a vacuum that ignores China’s slumping growth rates. Serious competition is finally rearing its ugly head, mainly in the form of its largest direct rivals, JD.com (JD) and Vipshop (VIPS). Analysts expect 2015 revenue growth at JD and VIPS of 55% and 68%, respectively.

By comparison, Wall Street expects revenue growth from BABA of just 27% this fiscal year.

But wait … there’s more!

Last month, Barron’s ran a scathing article: The main focus of which was not competition, the weakening Chinese economy or the counterfeiting problem, but the veracity of Alibaba’s reported financials.

Of course, the article doesn’t present proof of fraud, but it does raise eyebrows. For instance, it points out a troubling contrast between Alibaba’s reported user numbers and the estimated size of China’s online shopping population. BABA claimed to have 367 million users through June 2015, while the Chinese Internet Network Information Center estimated Chinese online shoppers numbered just 361 million through December.

Especially in light of the growing competition from JD.com and Vipshop, that seems rather unlikely.

What is likely, though, is a further reckoning in BABA stock as the market gets wise to these serious issues. The party can’t go on forever.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/alibaba-group-holding-ltd-baba-stock/.

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