AliBaba (NYSE:BABA) is one of the largest and most successful companies in the world, and yet, in the past year shares are down close to 50%. Now just imagine if this was Amazon (NASDAQ:AMZN) and how shocking this fall from grace would be stateside. Chinese stocks in general have been hammered this year.
It has been a near unparalleled decline for the world’s second largest economy and as we move into the final quarter of 2021, there seems to be no end in sight. Just last year, AliBaba was looked at as a potential $1 trillion company over the next few years. But now, it has become one of the most shunned stocks on Wall Street. Can Alibaba revive investor confidence for the Chinese Tech industry?
AliBaba revenues continue to rise despite regulation concerns
As investors, the interesting thing to note is that AliBaba hasn’t really slowed down in terms of its business. Much of the stock’s decline can be attributed to FUD surrounding the ongoing regulations that the government is instituting. The most recent quarter saw a 34% year over year rise in revenues, and a rise to a staggering 1.18 billion annual active users in the AliBaba ecosystem.
Not to be forgotten, AliBaba reinvested billions back into developing segments like its Lazada platform in Southeast Asia and its Aliyun Cloud computing subsidiary. AliBaba is firing on all cylinders and yet its stock has been cut in half.
Charlie Munger’s Firm has backed an AliBaba recovery
Warren Buffett‘s longtime business partner, Charlie Munger is well known as the Vice Chairman of Berkshire Hathaway. However, Munger is also the Chairman of Daily Journal Corp who are an American publishing firm. Daily Journal Corp maintains a portfolio of 5 stock investments however Munger’s firm only increased their investment in one stock, Alibaba. The firm added 136,740 shares in the three months ended September 30 taking the firms investment in Alibaba to $45 million.
Government Regulation continues to concern investors
Unfortunately for AliBaba, the stock decline has not been due to a secular trend or market catalyst. The CCP or the Chinese Communist Party has been issuing sweeping regulatory changes to multiple different industries in China, including education, gaming, electric vehicles, and of course, eCommerce.
Many have pointed at AliBaba founder Jack Ma’s public criticism of CCP officials back in the fall of 2020 as the trigger that started the regulatory snowball. Since then, the CCP has indefinitely delayed the IPO of Ma’s Fintech giant Ant Group. In addition, the CCP issued new policies for ADRs that trade on foreign exchanges.
Wallstreet lowers AliBaba stock price target, still represents 61% upside
In recent weeks, Alibaba stock has received lowered target valuations from Wallstreet analysts. Last week, Benchmark analyst Fawne Jiang lowered the firm’s price target on Alibaba stock to $270. The analyst highlighted recent consumer spending data from China. This data indicated that consumer confidence may be slowing in the largest economy in the world.
Jiang noted that that due to macro headwinds, the firm has lowered their e-commerce EBITA estimates. However, after a strong downtrend in BABA stock the valuation from Benchmark represents a 61% upside.
The Bottom Line – Can AliBaba Stock lead a tech recovery
The fear surrounding AliBaba is at an all-time high and its stock is trading at a price to sales ratio of 0.5. The lack in investor confidence alongside regulatory uncertainty can be attributed to the recent downtrend in Alibaba stock. In addition, consumer confidence in China may be slowing as noted by Benchmark analyst Fawne Jiang, which will have a flow on effect on Alibaba and its share price.
In saying this, the valuations on Wallstreet remain well above the current trading price. This includes Benchmark’s target of $270 a share. This week the market looks to be providing some support behind Chinese Tech firms that are publicly listed on the US stock exchange. AliBaba is currently trading 7% higher this morning. We will see over the next few weeks if Alibaba Stock can drive further optimism in the battered Chinese-tech space.
The information above is general information only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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