The markets had quite a case of the Mondays yesterday, with the Dow at one point shedding more than 1,000 points during the day … despite a pep talk from Apple (AAPL) CEO Tim Cook. It wasn’t just big-name American companies taking a pounding either; China’s Shanghai got battered to the tune of nearly 9% losses — its biggest one-day loss since 2007.
Chinese weakness has been weighing on stocks for some time now, but Chinese e-commerce giant Alibaba (BABA) has arguably felt the pain more than most. For those who forgot, BABA burst onto the scene last year in a monster tech IPO that raised $25 billion and made countless investors a pretty penny in the early months of the stock’s debut.
Ah, the good ol’ days. Thanks to the recent weakness, Alibaba stock is back down to its original price. Shares are trading on Tuesday just above their $68 IPO price thanks to a 3.4% selloff on Monday.
Put another way, Alibaba stock has now shed more than 30% of its value since the start of 2015.
Sure, BABA stock and the rest of the market are recovering today. But it’s a case of “to-may-to, tom-ah-to” — either way you slice it, things are downright ugly for BABA at the moment.
The weakening Chinese economy manifested in a recent sales miss from Alibaba, while the resulting selloff was proof that relying heavily on one market — especially one where competition is heating up — and facing high expectations can make for one deadly combination.
Of course, Alibaba’s head honcho Jack Ma is doing what he can to right to ship, including making promises about expanding to other up-and-coming economies like Russia, Brazil and India. And Alibaba, thanks to the selloff, is arguably a bargain. Despite concerns about the slowing economy, analysts still expect annual earnings growth just shy of 30% long-term … making the company’s current forward price-to-earnings multiple of 20 seem too good to be true.
But considering the macro environment — including mounting Chinese concerns and the general whipsaw nature of the markets this year — bargain-shopping for Alibaba is a fool’s errand at this stage of the game.
Earnings estimates for the current quarter and current year are marching in the wrong direction, the stock has been slapped with two downgrades this month alone and the drop below the IPO price just compounds any and all problems for Alibaba stock. Valuations aside, the reality is that the IPO price serves as an important psychological level for investors.
Alibaba investors specifically have a laundry list of reasons to be skittish, even ignoring the fact that investors across the board are absurdly skittish of late. With the market testing downward momentum and a bottom nowhere in sight for Alibaba, BABA stock simply isn’t worth the risk.
With just a little upward momentum, investors may be able to justify snagging some shares and hoping the BRIC expansion pays dividends … but it’s hard to say when anything resembling momentum might be delivered to BABA’s doorstep.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she did not hold a position in any of the aforementioned securities.