- Alibaba (BABA) stock appears to have bottomed on March 15.
- Investors remain hopeful that the Chinese government’s crackdown on publicly traded companies is ending.
- But risks remain for Alibaba and its shareholders in the form of rising competition and slowing growth.
Is the worst finally over for Chinese technology giant Alibaba (NYSE:BABA)?
After a year of pain, BABA stock looks to have bottomed at $76.76 a share on March 15. Since then, the stock has risen 40% to now change hands at $107.68, giving hope to investors and analysts who still believe in the potential of Chinese securities.
However, despite the recent move higher, BABA stock remains down 30% over the past six months and is currently 56% lower than its 52-week high of $245.69, reached in April 2021. This demonstrates just how big the collapse in Alibaba’s share price has been over the past 12-months.
| BABA | Alibaba | $107.68 |
Government Crackdown
The rise in Alibaba’s share price since mid-March coincides with reports that the Chinese government in Beijing plans to ease up on its crackdown of publicly traded companies, which has been ongoing for two years now. Alibaba was singled out for punishment by Chinese authorities, who canceled the company’s planned initial public offering of its Ant Group financial unit.
Alibaba was also hit with a record $2.8 billion antitrust fine and forced to pay $15.5 billion into a “common prosperity” fund set-up by China’s communist government and designed to help citizens in the nation of 1.4 billion people. All the abuse has weighed on BABA stock and also dragged the company’s corporate performance and earnings lower.
In February of this year, Alibaba reported abysmal quarterly results that included the slowest revenue growth ever for the company. The 10% fourth quarter revenue growth was the slowest quarterly year-over-year growth rate for the company since its 2014 IPO.
Reason for Hope?
No question that Alibaba and its shareholders have had a difficult few years. However, investors got a glimmer of hope recently when Chinese authorities signaled that they may now ease up on their crackdown of public companies, particularly technology concerns.
In mid-March, the Chinese government issued a statement saying it supports domestic stocks and their listing on foreign exchanges. The statement also said that regulators should, according to CNBC: “‘complete as soon as possible’ the crackdown on internet platform companies.” BABA stock and other Chinese securities rallied sharply higher on that news. But can Chinese authorities be trusted?
By some estimates, China’s crackdown has led to a loss of $1.5 trillion in equity markets. And it is hard to know if the government crackdown will subside for good given the lack of transparency and information coming from regulators and other authorities. It would not be unusual for officials in Beijing to flipflop or suddenly reverse course.
Other Issues Hurting BABA Stock
Other problems weighing down BABA stock include a resurgence of Covid-19 in China that has seen the City of Shanghai reimpose broad lockdown measures. When rising competition across its various business units, notably in e-commerce and artificial intelligence; enhanced scrutiny by U.S. securities regulators; and a global economy that is dealing with record inflation, a war in Europe, and ongoing supply chain issues are all taken into account as well, it still isn’t a pretty picture.
To be sure, BABA stock looks cheap right now. The company’s shares trade at about 13 times earnings, which is low for a company that’s still growing revenue and expanding into areas such as cloud computing and electric vehicles. However, Alibaba is beset with some big fundamental problems. Last autumn, the company cut its revenue outlook for this year and said it expects earnings to be nearly 20% lower than in 2021.
BABA Stock Is (Still) Too Risky
Alibaba looks to have bottomed and optimism is growing that the Chinese government’s crackdown on technology companies is ending. That said, China remains an unstable and risky market and there is no guarantee that Chinese regulators will backdown as promised. Additionally, Alibaba’s business continues to underperform and faces a number of threats that include rising competition and a challenging macro-economic environment.
Add it all up, and Alibaba still remains too risky to justify a position. BABA stock is not a buy.
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.
