Alibaba Group (NYSE:BABA) has been in turmoil for the past few quarters, following a confluence of factors. BABA stock advanced marginally since the beginning of the year, up 2.6% to $121.90 per share as of Tuesday’s close. Yet the company has witnessed a long drawdown. After reaching an all-time high of $319.32 per share in October 2020, the shares of BABA lost half of their value last year, dipping 47.55% to $118.79 per share.
In the meantime, the S&P 500 Technology Sector SPDR (NYSEARCA:XLK), one of the largest tech giants benchmarks, surged 33% in 2021 to $173.87 per share but dipped 6.3% year-to-date.
The selling pressure on BABA stock has been attributable to China’s tech crackdown. This regulatory tightening includes a $2.8 billion antitrust fine, the blocking of Ant Group’s initial public offering (IPO), and ongoing efforts to access BABA’s customer data to implement China’s social credit system.
In this context, is it time for investors to start looking again at the e-commerce giant? And more importantly, should investors start buying the dip if additional weakness arises?
As China’s Growth Slows, BABA May Lack Momentum
Economic growth in China is expected to slow down in 2022 and 2023 to 5.1% per year, compared to 8.1% last year, data from the OECD shows. This deceleration has raised market expectations about renewed policy support in China.
Policymakers have rolled out measures to support the economy and should continue to do so if we see more sluggishness. The government decreased interest rates in January 2021 by 10 basis points to 3.7% to reduce financing costs.
Reuters reported earlier this month that “The Caixin/Markit services Purchasing Managers’ Index (PMI) dropped to 51.4 in January – the lowest since August – from 53.1 in December.”
This deceleration might, however, prove temporary, given that business and consumer sentiment were hardly hit by a surge in Covid-19 cases at the end of 2021.
In spite of that, the Chinese tech sector has outperformed its U.S. tech peers since the beginning of the year, as Chinese regulatory concerns seem to be easing. This might prove a tempting opportunity for investors looking to increase their position on the Chinese e-commerce giant.
BABA Is Still a Remarkable Growth Story
The poor performance of BABA’s stock has been unconnected from its fundamentals. The net profit of the Chinese e-commerce behemoth’s stabilized in 2021 to 150.3 billion yuan, whereas net sales jumped 40.7% year-on-year to 717.2 billion yuan.
Going forward and while BABA’s top-line growth should decelerate to 20.4% in 2020 to 863.8 billion yuan, the group still has a strong growth profile. On the other hand, net income should dip robustly this year, down 32.7% YOY to 101 billion yuan, providing a net margin of 11.7%. Nevertheless, BABA’s net profit should bounce back in 2023, up 15.6% YOY to 116.8 billion yuan.
BABA’s balance sheet is well balanced. The tech company has a comfortable cash position of 181.9 billion yuan in 2021 and it is forecasted to more than double this year to 392.9 billion yuan.
Meanwhile, the e-commerce giant has boosted consistently capital expenditures over the past years and is forecasted to continue to do so in 2022, up 30.2% YOY to 51.4 billion yuan, contributing to fueling the company’s innovative projects.
Besides, the e-commerce growth story behemoth is unlike to soften going forward. BABA is still gaining active users on its platform. The group announced in its latest quarterly report that annual active consumers have reached 1.24 billion in the world for the 12 months ended Sept. 30, 2021, increasing by approximately 62 million from the 12 months ended June 30, 2021.
BABA Stock Trades At A Discount Compared to U.S. Peers
The valuation metrics of BABA are cheap given the fundamentals of the company. With a 2022 expected EV/EBITDA of 10.4x and a price-earnings ratio of 23.2x, the e-commerce company is one of the cheapest in the blue-chip tech space.
On the other hand, Amazon.com (NASDAQ:AMZN), one of the world’s e-commerce leaders, is currently valued at 2022 EV/EBITDA of 18.8x and 68.2x P/E ratio, with a net margin of 4.6% for the corresponding year.
JD.com (NASDAQ:JD), China’s second-largest internet consumer sales platform, is exchanging at much higher multiples. JD is valued at a 2022 EV/EBITDA of 23.1x and has a P/E of 59.8x, procuring a net margin of only 1.13% this year.
With these attractive valuation metrics, the consensus of analysts remains bullish on BABA stock, with an average upside of around 50% in the next 12 months, corresponding to a mean target price of $188.79 per share.
Selling pressure might continue to weigh on BABA stock in the near term. Yet, the growth story of the Chine e-commerce behemoth is not over, as the company continues to increase the number of its active consumers quarterly.
In this context and with the group’s attractive valuation metrics, I am bullish on BABA stock and believe it is a good opportunity for long-term investors.
On the date of publication, Cristian Docan held a LONG position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Cristian Docan, a contributor for InvestorPlace.com, has been writing stock market-related articles for Seeking Alpha, Stocknews, and Wealthpop since 2017. He takes a fundamental and technical approach in evaluating stocks for readers, focusing on momentum investing and macro-driven strategies.
