Among all the Chinese companies listed in the United States, e-commerce giant Alibaba Group (NYSE:BABA) is the most popular. Many investors view BABA stock as the value version of Amazon (NASDAQ:AMZN).

Like Amazon in the U.S., Alibaba dominates the Chinese online retail market. And its cloud services are growing at rates comparable to Amazon’s AWS offering. Yet, BABA stock trades at 21 times earnings compared to a price-to-earnings ratio of more than 60 for AMZN.

This may have you asking, what’s the catch? Why are investors getting such a good deal on BABA stock?

Chinese Government Crackdown Weighs on BABA Stock

Chinese regulators, including the country’s central bank and the State Administration for Market Regulation (SAMR), are investigating the “reckless push” of tech companies into the finance sector.

In December, the Chinese government announced a probe into Alibaba’s alleged monopolistic practices. In April, it slapped Alibaba with a record $2.8 billion fine, saying the e-commerce firm had been abusing its market position.

Prior to the monopoly probe, the government halted the initial public offering of Ant Group, an affiliate company of Alibaba Group, which is also run by billionaire Jack Ma. At the time, the IPO was expected to give Ant a market value north of $300 billion. If Ant goes public this year, analysts at Sanford C. Bernstein & Co. say its valuation could now be closer to $120 billion.

The Chinese government said its intention in squashing Ant’s IPO was a desire to maintain market stability and protect investors’ interests. In reality, Ma’s criticism of the Chinese government sparked their ire. Soon after giving a speech critical of China’s financial regulator, Ma disappeared from the public eye for weeks.

The Chinese government’s ongoing regulatory crackdown has weighed on BABA stock, which sits 45% below its all-time high, made in late October.

Alibaba Posts 34% Revenue Growth, Ups Share Buybacks

Alibaba posted its most recent quarterly results in early August.

For the three months ended June 30, the company saw revenue jump 34% year over year to $31.86 billion. This included $2.49 billion in cloud computing revenue, which represented 29% growth from the year-ago period. Overall revenue growth fell short of analyst estimates, though, while the loss of a major customer continued to weigh on the cloud business. Alibaba should be able to offset the loss of that customer as it continues to diversify across more customers and industries.

Operating income of $4.7 billion was down 11% year over year as the company put money into new business ventures and user growth. However, it was a big improvement over the previous quarter, when the company was hit with the antitrust fine.

What’s more, the company said its annual active consumers worldwide hit 1.18 billion, up 45 million from the 12 months ended March 31.

Following the report, Alibaba Chief Financial Officer Maggie Wu said the company would be upping the size of its share buyback program to $15 billion through the end of next year versus $10 billion previously. This is the largest buyback program in Alibaba’s history and signals management’s confidence in the company’s long-term growth prospects.

Alibaba Focuses on Strategic Investments

As I said above, Alibaba has been prioritizing spending money on new business ventures and user growth.

“We are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,” Wu said in the company’s earnings release.

Alibaba ended the quarter with around $73 billion in net cash. This leaves it with plenty of resources to deploy strategically. The company has been making investments recently in Community Marketplaces, bargain marketplace Taobao Deals, secondhand marketplace Idle Fish and live-stream e-commerce platform Taobao Live, to name a few.

Initiatives like this should continue to boost annual active customers. And, as Alibaba’s investments in these additional platforms bear fruit, investors can expect to see revenue growth accelerate over the next few quarters.

Regulatory Risk Remains

Alibaba’s record $2.8 billion fine for anti-monopoly violations may be just the beginning of the company’s regulatory headaches.

China’s new personal data privacy law, which takes effect Nov. 1, will pressure all e-commerce firms in the region. Investors will need to watch to see how it will impact Alibaba’s business.

China could also crack down on the variable interest entity (VIE) structure that has been used to list some Chinese companies on U.S. stock exchanges. If it does, Alibaba would find itself in regulators’ crosshairs for yet another reason.

When it comes to China’s regulatory focus on data, at least, Alibaba does not seem too concerned about its impact on the business. Alibaba Executive Vice Chairman Joe Tsai said on the company’s earnings call that adopting a data security law is important as the digitization trend unfolds. The U.S. and Europe are also implementing more personal data protection, and Alibaba is performing self-compliance checks to adhere to regulatory requirements, Tsai said.

The Bottom Line on BABA Stock

China’s stark regulatory shift has upped the risk of owning BABA stock. Valuations are likely to remain under pressure, even if the company posts higher profits.

That being said, many technology and value funds hold BABA stock, which could help put a floor under shares. Investors willing to hold the stock for at least five years could wind up reaping long-term gains.

On the date of publication, Chris Lau 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.

Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.