This Is the New Reality for Alibaba (BABA) Stock

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Already fighting election-related headwinds, the selloff of Alibaba Group Holding Ltd (NYSE:BABA) shares went into a higher gear when a somewhat-protectionist Donald Trump pulled off a political upset.

This Is the New Reality for Alibaba (BABA) Stock

Source: Photo by via Alibaba

If he follows through on his campaign rhetoric, trade to and from China could be stymied, taking a toll on Alibaba stock. And that potential headwind comes at the same time the e-commerce giant closes in on peak penetration of China’s consumer market.

Alibaba CEO Jack Ma isn’t worried, though — at least not publicly — suggesting President-elect Donald Trump wouldn’t do anything to hinder the trade relationship between the two countries, and that there’s plenty more growth in store. It may be time, however, for Alibaba stock holders to recognize the company’s future isn’t going to be as rosy as its past has been.

Alibaba Stock: The Donald Trump Impact

Long story short, the President-elect aims to peg China as a currency manipulator (since it is), which in turn could facilitate the tariffs on Chinese imports he’s threatened for months now.

It’s not a simple matter, however. China is the United States’ biggest trade partner, and vice versa. The two countries exchanged $600 billion worth of goods and services last year, with more than three-fourths of that activity coming from there, to here. U.S. consumers love low-cost goods made in China, and China loves U.S. dollars, which go much further in that country. Now that symbiotic relationship is in jeopardy.

Alibaba Executive Vice Chairman Joe Tsai — an occasional surrogate for Jack Ma — feels Trump’s words are more posturing than they are actual plans, though. He commented:

“China is going to be and already is the source of consumer demand and the source of capital for America. So if you’re the American president, you have to pay a lot of attention to that because your job is to create a lot of jobs in American society. And if you don’t have Chinese consumers being engaged and buying American products, and Chinese investors can’t invest in the United States, and create more American jobs, then you’d be in trouble.”

Not quite.

While the premise has been well touted, when all is said and done, Alibaba doesn’t drive a massive amount of revenue for U.S. companies considering how many U.S. companies have a presence at TMall. SunTrust Robinson Humphrey analyst Bob Peck thinks that by 2017, sales U.S. and European-made goods will still only roll in at an annualized pace of between $30 billion and $40 billion. That’s less than 10% of the company’s gross merchandise volume reported last fiscal year.

In other words, owners of Alibaba stock may want to accept that if trade relations between China and the U.S. sour, its United States supplier would be fine. Chinese consumers, who generate 90% of Alibaba’s business, would cinch up their wallets as American consumers found alternative suppliers to buy cheap goods from.

A Red Flag for BABA

With or without the brewing headwind that comes in the form of reshaped trade policies between China and the United States, there’s another reality Alibaba stock holders will have to digest sooner or later … the company’s fantabulous growth pace of the past isn’t sustainable.

Not that one day can make or break a company, but one day can serve as a microcosm of a much bigger trend. For Alibaba, the most recent Singles Day event may point to disappointment going forward. How so? This year’s Singles Day sales “only” grew 32% from last year’s top line, to $17.79 billion.

It is comedic, until one sees the scope of the slowdown. A year ago, the day’s sales growth topped a whopping 60%. In 2014, sales growth was 58%. It’s an indication of saturation. New customers have been the lifeblood of growth at Alibaba.

Underscoring this idea is the fact that this year’s economic growth in China is on pace to be the lowest growth pace in a quarter of a century. Enodo Economics chief economist Diana Choyleva explains, “China’s growth has already slowed down dramatically from the heady rates before the financial crisis. The economy has reached the end of the road when it comes to its export- and investment-led growth model.”

Bottom Line for Alibaba Stock

To be clear, none of this is to suggest Alibaba is headed toward oblivion. One way or another, it’s going to find a way to stick around, tiptoeing into new ventures. The most recent addition? Grocery stores.

It is to say, however, that the red hot growth that made Alibaba stock such a must-have is winding down. From here, the company will have to justify the value of BABA stock based on fundamentals and organic growth. That’s relatively new territory. It may be a let-down when all’s said and done.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/11/alibaba-group-holding-ltd-baba-stock-t-mall/.

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