I can’t understand why Alibaba (NYSE:BABA) isn’t getting more attention from investors. That statement might surprise you, but I’m not talking about the stock price.
BABA stock is trading at an all-time high, a feat undoubtedly aided by the company’s performance during the 618 sales event. Over the course of 18 days, Alibaba generated $98.5 billion in revenue.
Strong as those numbers may be, they weren’t unexpected. So why isn’t Alibaba stock trading even higher today?
The company has an exceptional balance sheet. It has the e-commerce expertise and comparable domestic market share of a company like Amazon (NASDAQ:AMZN). But it also is a very well-developed technology company in its own right.
In fact, while some people inside the United States are looking for reasons to break up the market stranglehold of America’s FAANG stocks, Alibaba combines many of these companies core competencies in a single entity with a market cap just under five trillion dollars.
So why isn’t Alibaba stock higher? I think the simple explanation is that it’s a Chinese company at a time when there is pressure building to force Chinese companies to follow United States laws for financial disclosures or face delisting.
But is that a good enough reason to stay away from the stock? It appears that may no longer be the case.
China Stocks Have Been Out of Favor
The threat of delisting threat is just the latest in a long line of foreign policy issues that Chinese stocks have to contend with. Ever since President Trump was elected in 2016, he has made it clear that U.S. foreign policy in regard to China was going to be different under his administration.
In 2019 Alibaba stock went up and down with every piece of news about the ongoing international trade dispute. But that wasn’t particularly surprising and most U.S. stocks did the same. Then, as the calendar turned to 2020 with the stock surging, the novel coronavirus broke out in China and the stock plunged again.
And just as Alibaba stock was recovering from that hit, Chinese stocks took another hit with the scandal involving Luckin Coffee (NASDAQ:LK). While the accounting scandal that hit Luckin shouldn’t have had an impact on Alibaba, or any other Chinese stock for that matter, the controversy crystallized the frustrations of the the Trump administration. Specifically, the government threatened that companies could be delisted from U.S. exchanges if they don’t adhere to the Sarbanes-Oxley (SOX) Act.
Will Alibaba Stock be Delisted?
For its part, Alibaba management has stated that the company prepares and presents its financial statements in accordance with U.S. accounting standards. And investors know that Alibaba stock will continue to trade on the NASDAQ exchange for several years, even if the United States passes a bill to have the stock delisted. But how likely is that?
If I had the answer to that, I’d probably be doing something else with my career. But I suspect that the bill will die a noisy, but ultimately expedient death by pocket veto. The bill has passed the Republican-led U.S. Senate. But the House of Representatives is pledging to give the bill the rigorous debate it did not receive in the Senate.
I only walk you through this exercise to remind you that, for all the administration’s rhetoric, China is still a hot potato that most politicians would really rather avoid.
Alibaba is a Strong Buy Regardless of What Happens
Alibaba is beginning to attract U.S. companies to its platform. This helps align the interests of Alibaba with those of U.S. businesses. 2020 is an election year and China is one of its hottest topics. For that reason, I suspect Alibaba stock will have some volatility through November. But once there is more clarity on who is occupying the White House for the next four years, I expect Alibaba stock to take off.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
