Has Alibaba (NYSE:BABA) stock finally bottomed?
The beleaguered Chinese e-commerce giant’s stock has been in a funk since mid-February, sliding nearly 20% to $215 per share. The stock has largely traded sideways since early May, and BABA stock has now fallen about 25% since last Halloween.
The question now is: Will the share price continue to slide and fall below $200, or can the stock finally start to recover? While the market conditions appear to be in Alibaba’s favor, political issues continue to hang over the company like dark rain clouds.
Running Afoul of Regulators
Alibaba, which is often referred to as the “Amazon (NASDAQ:AMZN) of China” is considered a best-of-breed Chinese stock for a reason. The company’s business, which includes everything from online shopping and payments to cloud computing and artificial intelligence, is going great.
On May 13, the company reported its latest financial results that showed it had generated $28.6 billion of revenue during its 2021 fiscal fourth quarter, up 64% from the same period a year earlier.
However, the celebration was dampened by the fact that Alibaba posted its first operating loss as a public company in Q4 due to a massive $2.8 billion antitrust fine levied by the Chinese government. The fine imposed this spring was the latest example of Alibaba drawing the ire of Chinese regulators and politicians in Beijing.
Alibaba and its CEO, Jack Ma. have been under increased scrutiny since last autumn when the company’s planned $34.5 billion initial public offering (IPO) of Ant Group, its financial technology (fintech) unit, was abruptly cancelled.
Chinese authorities continue to crack down on technology companies, as well as cryptocurrency miners and dealers. In May, China’s market regulator announced that it was investigating food delivery company Meituan.
The official reasons for the crackdown have not been given by the government, although analysts speculate that Beijing is going after companies that it thinks could become too big for the government to control. Exactly how long Alibaba could be under threat by the government remains unclear, but Jack Ma is still keeping a low profile.
Robust Growth
Political issues and fines aside, Alibaba continues to enjoy robust growth. The company has forecast that it will generate revenue of $143 billion in its current fiscal year, which would represent 30% year-over-year growth.
For last quarter, Alibaba reported 72% year-over-year growth by its main e-commerce business, and 101% YOY growth by its logistics business, which is called “Cainiao.” Other units, including a new supermarket business called “Freshippo,” also contributed strongly to Alibaba’s bottom line.
The cloud computing division, which turned its first profit last December, remained in the black in Q4, with its revenue growing 37% from the same period in 2020. The strong results and continued growth across multiple business lines have many analysts saying that BABA stock is a bargain at its current price.
If the political crackdown against Alibaba in China subsides and relations between the U.S. and China improve under the Biden administration, then Alibaba’s share price could appreciate substantially.
Analysts currently have a median price target on BABA stock of $287.06 per share.
Buy and Hold BABA Stock
People who follow the stock purchases of successful investors will be interested to know that Cathie Wood’s Ark Invest Management has been scooping up shares of BABA stock at their current price, purchasing 35,022 shares estimated to be worth about $7.39 million.
And notoriously conservative investor Charlie Munger, who runs Berkshire Hathaway (BRK.B) with Warren Buffett, has also bought Alibaba stock on the way down. Munger has invested $37 million in Alibaba, which was surprising given that the 97-year-old investor tends to favor U.S. banks such as Wells Fargo (NYSE:WFC).
Investors with a long time horizon would be smart to buy BABA stock now while it is trading at a low valuation. Despite the recent turmoil, Alibaba still has a great long-term story to tell.
Consider that the company is one of the world’s biggest e-commerce, cloud computing, artificial intelligence and investment corporations in the world, and it’s easy to see the value of holding Alibaba shares in a portfolio. Going forward, the company should be able to continue on its torrid growth rate, and patient shareholders should be rewarded with big returns on their investment.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
