I’ve had my reservations but so far, I’ve been dead wrong: Alibaba Group Holding Ltd (NYSE:BABA) is taking the markets by storm. Year-to-date, the BABA stock price gained over 104%, putting it among the top flyers in the New York Stock Exchange. As would be expected, market analysts can’t get enough of BABA shares. But when does extreme enthusiasm reach the tipping point?
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It’s a fair question to ask.
According to data compiled by Yahoo! Finance, all 46 covering analysts expecting the Alibaba stock price to move higher. In fact, the sole dissenting analyst in the previous three months switched over to the long side. Furthermore, the BABA dissenter wasn’t really that at all; rather, the analyst ranked shares as a hold.
The only debate surrounding the BABA stock price is the magnitude of bullishness among proponents. Perusing Alphabet Inc‘s (NASDAQ:GOOG,NASDAQ:GOOGL) Google Finance site, you really have to scroll down the analyst contributions list until you find a bearish, or at least cautious, opinion.
Our own Dana Blankenhorn sums up the glowing fervor for Alibaba stock. He writes:
“Here at InvestorPlace, we’re all believers in the Alibaba story. Larry Ramer calls it a screaming buy. Even the units that are losing money, like digital media, are showing enormous growth, while its cloud is now profitable and it is surging internationally.
“The company is only getting started, adds Luce Emerson.”
I want to point out one cautionary detail. Blankenhorn starts his argument by asking which is a bigger bubble: the Alibaba stock price, or our domestic high-flyer Amazon.com, Inc. (NASDAQ:AMZN)? He does not use the term if.
This distinction is critical to how we approach BABA stock moving forward.
BABA stock Sentiment reaching Bubble-like fervor
As the Alibaba stock price broke new ground, the cesspool of financial internet trolls became further emboldened. Plenty of niceties have been distributed across various forums, but the gist of the argument is that you don’t want to mess with momentum. As evidence, the trolls point to their alleged “paper” gains.
I don’t necessarily agree or disagree with this line of reasoning, it depends upon the context. But I find it interesting that investment trolls largely spout the age-old aphorism, “buy low and sell high.” Suddenly, when it comes to the BABA stock price, their argument is now “buy at any price.”
Don’t get me wrong: I’m not here to give credence to internet trolls. At the same time, both the public and the professional opinions toward Alibaba stock shouldn’t be ignored. The vast majority is bullish, and the fervor is only rising. We’ve seen this behavior many times before, yet somehow, every bubble is justified because “this time, it’s different.”
I’m not against the concept of momentum trading, or loosely, “buy high, sell higher.” After all, I’m a big proponent of Bitcoin and crypocurrencies. But the key difference is that Bitcoin is about sparking a radical paradigm shift in finance and business. An investment in BABA stock, on the other hand, is betting on e-commerce.
It’s been done before. The only difference with Alibaba stock is that the market is in China. The knee-jerk reaction is that this is a spectacular story because of China’s massive population. But as Weibo Corp (ADR) (NASDAQ:WB) investors know, Chinese stocks aren’t always a panacea for your portfolio.
To put it nicely, the Chinese have a different mindset than we do. Government crackdowns, kickbacks and various forms of corruption are par for the course.
Fundamentally Jarring questions Remain for Alibaba stock
Barron’s published one of the few bearish articles I could find on the Alibaba stock price. In their assessment of nine risk factors for the company, one really stood out to me: “Negative results from U.S. Securities and Exchange Commission inquiry.”
The accusation stems from a possible accounting fraud going back one year ago. Specifically, the SEC investigated BABA’s Cainiao Network, which handles its logistics and transport operations. Additionally, the regulatory agency analyzed the e-commerce giant’s “Singles Day” shopping promotion sales figures.
If BABA stock were a speculative mining operation, I’d understand. But the fact that the “Chinese Amazon” is triggering such inquiries to begin with concerns me. Recall that the 2000 tech bubble crashed very quickly when regulators discovered accounting discrepancies. Also remember that in its heyday, people thought that internet companies would keep rising in perpetuity.
A similar fate may or may not happen to Alibaba stock; we’ll just have to wait and see. But for anyone who enjoyed massive gains on BABA, I urge them to consider Blankenhorn’s wise words. “It’s real only when you sell the stock and get cash in your pocket.”
Josh Enomoto is long Bitcoin.