Alibaba Group Holding Ltd Stock Can’t Escape “Fake News” Accusations

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Alibaba stock - Alibaba Group Holding Ltd Stock Can’t Escape “Fake News” Accusations

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Agree or disagree, I’ve always respected my InvestorPlace colleagues’ perspectives on various subjects. However, I admit perplexity when Alibaba Group Holding Ltd (NYSE:BABA) enters the discussion. I get that people are enthused with the overall performance of Alibaba stock, and that China will soon become the largest retail market. My question is, why aren’t more people worried about the company’s shadier side?

Seemingly, the vast majority of analysts gush about BABA stock because of Alibaba’s out-of-this-world sales and growth figures.

But what if these numbers were literally unreal? In a political age where every hair on President Trump’s head is analyzed for Russian collusion, I find it odd that few investors want to discuss the glaringly obvious: BABA’s success is at least partially “fake news.”

So I’m encouraged with my colleague Ian Bezek, who confirmed that I at least wasn’t going crazy. Bezek stated that another side to Alibaba stock often goes unmentioned. The Chinese e-commerce giant’s financial metrics are at times too good to be true. He writes:

“According to the Chinese government, the total online GMV (gross merchandise volume) is under $200 billion — Alibaba’s reported sales figures would account for 92% of the whole market. That doesn’t stack up, given the strong sales figures of JD.com Inc (ADR) (NASDAQ:JD) and other competitors. Alibaba also claims to be growing sales at a 50% annual rate, while the government says online sales are growing at less than 30% per year.”

I’m not sure how other people feel, but I’m not good with companies lying to me. Even if it’s the perception of malfeasance, I’m not comfortable with it. I want to have absolute trust in the structural integrity of my investments, and BABA stock doesn’t provide that. Indeed, Alibaba may never be trustworthy.

Alibaba Stock Suffers From a Cloud of Suspicion

As a cryptocurrency investor, I never hear the end of how I’m putting my money into a digital black hole. However, these same critics also invest in Alibaba stock. I consider that contradictory. Investing in a Chinese company carries with it risks similar to what we see in the blockchain.

For instance, a significant fear that the average investor has towards investing in cryptocurrencies is government crackdowns. China has repeatedly stymied the blockchain’s progress for two reasons: stop Chinese money outflow to foreign investments, and to maintain its communist ideology. It’s behavior straight out of North Korea and the former Soviet Union.

Are we then to assume that BABA stock is somehow completely safe from shady business practices? I doubt it, and persistent accusations of accounting irregularities have me concerned. Now, we’re hearing stories that Alibaba’s exaggerated financials are just the tip of the iceberg.

At the end of last month, Bloomberg broke a story that China exaggerated its 2015 GDP data. Multiple provinces, including Liaoning and Inner Mongolia, admitted to falsified economic growth.

At this point, I’m not sure how any reasonable investor can trust Alibaba stock, given its Chinese flagship status. We’re contending not only with possible corporate fraud, but a business landscape built on lies. Also, please keep in mind that I’m referencing Bloomberg, not some right-wing conspiracy website.

With this is a shocking revelation, you also have to wonder about other possibly falsified data points. How genuinely stable is the yuan? What is the true assessment on Chinese consumer sentiment? Can China adequately manage its debts? The answers to these questions, assuming they’re real, will directly or indirectly impact the BABA stock price.

BABA Stock: The Technicals Confirm the Fundamentals

Although Alibaba stock is up 12% year-to-date, I argue the company hasn’t done much since August of last year. In contrast, e-commerce king Amazon.com, Inc. (NASDAQ:AMZN) has made stride after incredible stride. People have reasons to trust Amazon.

Alibaba stock, at this juncture, is a tough investment to justify. Even if you think its financials are completely clean, you have to question why the share price hasn’t moved. The longer BABA stays in this sideways consolidation, I believe the riskier it becomes.

The Chinese government isn’t business friendly, nor is it innovation friendly. When their communist ruling party senses a threat, it imposes severe and draconian policies. Now, we also know that some of their vaunted economic growth was fake news. On top of that, Alibaba has been dogged with accounting irregularity accusations.

I’ll leave the final decision about Alibaba stock up to you. As for me, if it walks like a duck and quacks like a duck, it’s probably a duck.

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

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2018/02/alibaba-group-holding-ltd-stock-fake-news/.

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