Fed-up investors who dumped Alibaba Group (NYSE:BABA) stock in March will regret it. BABA stock bottomed at $73.28 in mid-March 2022. The following month, Premier Li Kequiang said it would pause its crackdown on the sector. The shift to promoting economic growth proved helpful to BABA stock. Shares are up by around 60% from the 52-week low. It only needs less than 50% more in gains to return to yearly highs.
|BABA||Alibaba Group Holding Limited||$115.33|
BABA Stock Roars Ahead
China backed off on its push for common prosperity amid the Covid-19 omicron outbreak. The Chinese Communist Party (CCP) abruptly shut down Shanghai in late March. At the time, it planned lockdowns that would last no more than a week. Two months later, the economic devastation forced the government to shift its priorities.
To ease the devastating economic hardships on its people, the Chinese government will tone down its crackdown on technology firms. The sector not only lost trillions of dollars worth of market capitalization, but also faced a slowdown. To re-accelerate growth in the current quarter, the government must let Alibaba, its rival JD.com (NASDAQ:JD), and internet retail firm Vipshop Holdings (NYSE:VIPS) thrive.
On Jun. 8, China’s gaming regulator approved licenses for 60 game titles. This is the boldest signal from The National Press and Public Administration. Chances are very high that the government has continued to loosen its one-year-long regulatory policies.
BABA shares are dirt-cheap. The forward price-to-earnings (P/E) ratio is around two times. The internet retailer trades at a steep discount to its American peers. eBay (NASDAQ:EBAY) is on a downtrend and still trades at a 10 times forward P/E. eBay also has a debt-to-equity ratio of 1.18 times, whereas Alibaba has no meaningful debt.
Investors who prefer to build financial models may use this enterprise-value-to-EBITDA multiples model. By comparing Alibaba to JD.com, eBay, and Vipshop, the fair value is $165.47.
Rumors of Ant Financial IPO
Twice in June, rumors circulated that the CCP would accept the Ant Group application. This would allow Ant Group to set itself up as a financial holding company. After the Reuters report, China denied the rumor.
On Jun. 22, Bloomberg reported that Ant Group might apply to become a financial holding company. Within hours after the market opened that day, no one could confirm the rumor. Despite the market’s manipulation of BABA stock, chatter about the initial public offering (IPO) for Ant Financial is a positive development. Markets are warming up to Alibaba again.
Investors cannot expect Alibaba will recover from its glorious growth in mid-2017 and onward. Back then, China enabled technology firms to thrive. Today, the government is limiting its growth.
Is BABA Stock a Buy Now?
After forming an uptrend, Alibaba is becoming a roaring tiger again. This time, it will moderate its growth ambitions. It will not seek more market share in the e-commerce space. Nor will it try to dominate the financial technology market with Ant Group.
Now that the CCP is not watching Alibaba as closely, investors may expect the stock to outperform the markets from here.
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.