As we head into 2022, there’s reason to believe that the worst may finally be over for Chinese e-commerce giant Alibaba (NYSE:BABA) stock.
After a bruising year in which Alibaba was subjected to numerous punishments by Chinese authorities, including a record $2.8 billion antitrust fine, it looks like the company is starting to get out from under the thumb of regulators.
This is good news for shareholders who have held onto BABA stock and watched it decline 50% during 2021.
After hitting a 52-week low of $109.50 on Dec. 6, Alibaba’s shares look to have finally bottomed and have since climbed 5% to now trade at $114.90 per share. Heading into a New Year, shareholders will be hoping that the stock price continues to recover.
Cheap at Current Levels
At its current price near $118 a share, BABA stock is not just undervalued, it’s downright cheap, according to a slew of analysts who have singled out Alibaba as one of their top investment ideas for the year ahead.
Currently trading at a price-to-earnings ratio of 17.5, Alibaba does look inexpensive when compared to its main U.S. rival Amazon (NASDAQ:AMZN), which currently trades at a price-to-earnings ratio of 58.9.
Analysts say the low valuation makes taking a position in BABA stock worth it. This is despite the risks posed by the Chinese government’s ongoing crackdown on publicly listed companies, particularly those in the domestic technology sector.
Going forward, analysts highlight Alibaba’s market leading position in e-commerce, artificial intelligence and cloud computing as reasons why the company and its stock should thrive. Among 51 professional analysts who cover the company, the median price target on Alibaba’s stock is $200.07, which would be 63% higher than its current level.
Lingering Uncertainty
Given its size (current market cap: $340 billion) and market leading position, Alibaba is a true best of breed Chinese company.
However, despite its success, BABA stock continues to suffer from the lingering uncertainty created by the erratic and unpredictable actions of the Chinese government in Beijing.
Alibaba’s share price recently took a hit after it was announced that Chinese ride hailing and food delivery company Didi Global (NYSE:DIDI) would delist from the New York Stock Exchange barely six months after holding its initial public offering (IPO).
The delisting spooked investors who are worried that more Chinese companies will be forced to delist from overseas exchanges.
Uncertainty is also being created by the U.S. government. It continues to add to its list of publicly traded Chinese companies that American investors are prohibited from taking positions in due to national security concerns.
There are worries that it might be government officials in Washington, D.C. rather than Beijing who ultimately force Chinese companies to delist from American stock exchanges.
Uneven Earnings
Owing to all the upheaval, Alibaba has reported uneven and disappointing financial results. Most recently, the company announced third quarter results that missed analysts expectations on both the top and bottom lines.
Alibaba reported Q3 revenue of $31.4 billion, good for a 29% year-over-year increase but below what Wall Street expected. Earnings per share declined nearly 40% in the third quarter from a year ago.
BABA stock fell 11% right after its latest quarterly report.
Despite the disappointing earnings, Alibaba has announced a turnaround plan that has impressed analysts who track the company. Most notably, Alibaba plans to separate its e-commerce business into domestic Chinese and international units, and says it will focus on international growth opportunities moving ahead.
The plan, while new, has earned encouragement from analysts who think looking outside China is the right strategy for the company.
Take a Small Position in BABA Stock
China continues to puzzle investors and how far authorities in Beijing will go with their private sector crackdown is unclear. Add in the ongoing political tensions between China and the U.S., and investing in any Chinese stocks right now remains a risky proposition.
That said, Alibaba is one of the very best Chinese companies and a leading technology concern. Its shares are currently available at a rock bottom price that underscores how deeply undervalued the stock is right now.
Weighing the risk/reward with Alibaba is not easy, but the deeply discounted share price justifies taking a small position in BABA stock and seeing what the New Year brings. Fingers crossed.
On the date of publication, Joel Baglole held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
