I get it. A Chinese internet stock that has Chinese regulators breathing down its neck is not the most enticing name for U.S.-based investors. However, Alibaba (NYSE:BABA) has massive value at its current levels. While the U.S. market hovers at its highs, BABA stock is just slightly more than 10% above its 52-week low.
Worse, the stock is still nearly 30% below its 52-week high, which was set in October.
That doesn’t set a good tone. That’s especially true when Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG), Nvidia (NASDAQ:NVDA), and Microsoft (NASDAQ:MSFT) are all hitting new all-time highs.
Amazon (NASDAQ:AMZN) is trying to break out after a multi-quarter consolidation, and Apple (NASDAQ:AAPL) continues to stay fairly strong.
So why should investors buy BABA stock, a clear laggard of large-cap tech? Simply put, it has value. The company runs a robust business in a massive economy, and it is not yet getting the premium that it deserves.
Breaking Down Alibaba
China is a massive country, with a population of more than 1.3 billion. Its middle class is larger than the entire population of the United States, while China has the world’s second-largest economy.
Consequently, Alibaba is in a prime position for growth. As is well-known, e-commerce is growing explosively in many nations, including China. In China, however, e-commerce is much more pervasive, and Alibaba dominates the sector.
While Alibaba has competition, including JD.com (NASDAQ:JD) , Alibaba owns the most popular e-commerce sites in the country, and its market share there is dominant.
Alibaba’s Tmall is the third most popular website in the world (behind YouTube and Google), and the company’s Taobao asset is the eighth most popular website. These are incredible websites, and they’re just one part of the firm’s story! Alibaba also has other units; most notably, it owns a cloud business.
Analysts, on average, expect the company to deliver 30% revenue growth this year. Further, BABA stock trades at roughly 21 times the company’s earnings.
Like Google, Apple, and Amazon, Alibaba has great assets, operates in a growing economy, and is in a continuous-growth industry. Don’t overthink it.
Alibaba Still Faces Risks
The reasons to be bullish on BABA stock are pretty simple. The company continues to grow and expand, and the stock is very cheap, after the shares sank following regulatory issues with Ant’s IPO. Alibaba has a 33% stake in Ant.
But I believe that those issues have created an opportunity for investors because Alibaba’s businesses continue to do incredibly well, even though BABA stock trades at a low valuation and is clearly out of favor with investors.
Even though the company paid a record fine to Chinese regulators, the fine was smaller than expected. Further, the fine should put most or all of Alibaba’s regulatory issues in the rearview mirror.
But Alibaba still faces risks.
Regulators could dial up the heat on Alibaba once again. China plays by different rules than the U.S., and American investors know that.
And with U.S. equities trading near their highs, even a mild pullback in the indices could put more selling pressure on BABA stock. Further, a correction in Chinese equities — since Alibaba’s shares are also listed in China — could also create additional selling pressure.
Lastly, U.S. investors just don’t get Alibaba. They don’t trust Chinese regulators, and most of them don’t use Alibaba’s websites.
Trading BABA Stock
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Alibaba’s recent move back over $223.20 has enabled BABA stock to reach a June high, while allowing it to exceed its 100-day moving average.
Clearly, however, Alibaba is not a relative-strength leader. But it is a deep value, growth name, and bullish investors are using the stock’s prolonged weakness to build a longer-term position in it.
On the date of publication, Bret Kenwell held a long position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
