It’s not every day investors can get one of the best stocks in the market at a certified discount. Particularly when the stock market itself is hitting all-time highs. But that’s what’s happening right now with Alibaba Group Holding’s (NYSE:BABA) BABA stock.
Alibaba, the Chinese e-commerce and cloud company that draws favorable comparisons to Amazon (NASDAQ:AMZN), is going through a down stretch.
First, there are fears that the company won’t be able to profit after all from the Ant Financial IPO. And then there’s the very realistic possibility that the U.S. will follow through on threats to impose strict audit standards on foreign companies, or they could be delisted from U.S. exchanges.
The twin headwinds pushed BABA stock down more than 10% in the last month.
But as the proverb goes, one person’s loss is another person’s gain. Despite the problems facing Alibaba these days, there’s an awful lot to like about this e-commerce company. Alibaba has a well-deserved “B” grade in my Portfolio Grader, where it has a buy recommendation.
The Ant IPO May Not Happen in 2021
One development that investors have been anticipating for Alibaba this year has been the pending IPO of Ant Financial. Ant Group was looking at a valuation of more than $315 billion and was raising a record $34.5 billion for the financial technology company’s initial public offering.
That would make it the largest IPO in history. Ant Group runs Alipay, which is a popular digital payment platform in China. Alibaba would be a prime beneficiary, as it owns a 33% stake in Ant.
But the IPO has been pushed back because China is making changes to its rules that govern its fintech industry. Beijing wants Ant to agree to new and proposed guidelines that include rules for lending to consumers.
According to Bloomberg, Ant is only in the beginning stages of reviewing those regulations. In fact, there’s so much work to do that onlookers believe that the Ant Financial IPO may not get done until 2022.
Ant has a deadline of October to get the deal done before its IPO filing expires. If that happens, Ant would have to start the process of going public all over again.
There’s Legitimate Delisting Pressure
Alibaba and other Chinese stocks are also facing the very real possibility that they’ll have to open up their books to U.S. regulators or get delisted from U.S. exchanges.
Last week, the House of Representatives passed – on a unanimous vote – legislation that require foreign companies to meet rigorous audit standards. The bill had already passed the Senate, and President Donald Trump is expected to sign it into law before he leaves office next month.
Currently, Alibaba and other foreign companies that raise money in the U.S. don’t have to allow regulators to verify the audits of those companies.
Alibaba and others have three years to comply with the new regulations. So, while there’s no immediate danger, the bipartisan nature of Congress’s action makes it unlikely that the bill would be overturned should Trump sign it into law.
The biggest concern, of course, is that a BABA stock delisting would hasten Beijing’s efforts to build up its own exchanges.
While BABA Stock Is Still Appealing
Despite everything that’s going on with Alibaba – and you can see now why the stock is down more than 10% this month – there’s a lot to appreciate.
As I wrote recently, Alibaba’s investments in cloud computing are paying off handsomely. Its cloud computing division is expected to turn a profit for the first time this fiscal year. CEO Daniel Zang calls cloud computing “the kind of opportunity that comes only once in a generation.”
Remember, the global cloud computing market will be worth $371.4 billion this year. And it’s expected to grow to $832.1 billion in 2025.
Meanwhile, the company had a great fiscal second quarter, with revenues up 30% on a year-over-year basis to $22.84 billion. Earnings per share increased by 37%.
The Bottom Line
Investors are justified to be concerned about the headwinds facing Alibaba. But they should also remember that even without the Ant Financial IPO, Alibaba is an amazing growth stock.
It’s hard to find the kind of growth that Alibaba consistently gives investors. It has a stranglehold on the Chinese e-commerce market and is a growing force in cloud computing.
And best of all, its shares are on sale now.
On the date of publication, Louis Navellier had a long position in BABA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article had a long position in AMZN but did not hold (either directly or indirectly) any positions in any other securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.