If international traders have learned anything this year, it’s that Chinese regulators aren’t the same as American ones. Due to China’s no-nonsense policies and implementation, Alibaba (NYSE:BABA) is out of favor among investors and BABA stock is on the ropes.
As a result, it might be tempting to panic-sell your BABA stock if you own them, or just to avoid the stock altogether. Some folks may even choose to shun all Chinese stocks.
However, I’d like to encourage you to think differently than the panicky crowds. If you truly believe in buying when there’s blood on the streets, then BABA stock should be on your watch list now.
Plus, as we’ll see, Alibaba isn’t being passive amid the Chinese government’s scrutiny. The company is taking action, and even aligning itself with China President Xi Xinping’s far-reaching vision for the nation.
A Closer Look at BABA Stock
Around a year ago, the price action seemed pretty bullish for BABA stock. With apparently no worries on the horizon, the stock topped out at around $320 on Oct. 27, 2020.
Then came a prolonged decline which sent Alibaba shares below the crucial $200 level in July of 2021. There were quick pops along the way, but the overall trend was decidedly to the downside.
By early September, BABA stock had fallen into the $170s. It surely felt as though there would be no end to the carnage.
On the other hand, value-focused investors should be salivating right about now. In a time when so many technology and e-commerce stocks are expensive, Alibaba shares look like a terrific bargain.
Consider that the trailing 12-month price-earnings ratio for Alibaba is just 20.8. That’s quite reasonable and suggests that the company is sufficiently profitable to justify the BABA stock price.
Vicious Competition, Disorderly Expansion
Perhaps it’s my American bias, but sometimes Chinese regulators seem to be excessively harsh on the country’s businesses.
Yet, as an investor and reporter, I must set my local viewpoints aside and just look at the facts at hand.
Apparently, Chinese regulators have ordered 11 ride-hailing platforms and related businesses to refrain from alleged misconduct for recruiting purposes.
According to a statement from China’s Ministry of Transport, these businesses must not “induce” drivers to join their platforms through “false publicity,” and cannot “use capital to engage in vicious competition and disorderly expansion.”
Whether these companies are actually engaging in “vicious competition” and/or “disorderly expansion” is debatable, and beside the point for investors.
Supporting Common Prosperity (Hopefully)
I’ve said many times in my life, you can’t fight the government.
This is particularly true for investors, and applies even more when it comes to Chinese stocks.
Thus, Alibaba is taking action to demonstrate that the company is prepared to toe the line.
Just recently, it was reported that Alibaba pledged to invest 100 billion yuan ($15.5 billion) by 2025 in support of Beijing’s “common prosperity” initiative.
Hopefully, this will go towards a good cause as the “common prosperity” initiative is apparently part of an effort to ease inequality in China.
Moreover, Alibaba has confirmed a plan to set up a 20 billion yuan “common prosperity development fund.”
It’s quite a coincidence that Alibaba is choosing to support the Chinese president’s initiative now.
I’m being sarcastic, of course. This is a deliberately timed act of appeasement. Again, fighting the government isn’t a game worth playing.
The Bottom Line
We can hope that Alibaba’s act of “generosity” will benefit the Chinese people.
Or at the very least, maybe it will put Alibaba in the Chinese government’s good graces.
Either way, BABA stock has been excessively punished, and appears to be a good value for contrarian investors.
On the date of publication, David Moadel 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.