Alibaba Share Price Forecast August 2021 – Time to Buy BABA?

Shares of Chinese multinational technology company Alibaba Group Holding (NYSE: BABA) are in the news today after falling to levels last reached more than a year ago.  The main reason for the drop is the new set of rules announced by Chinese regulators to control how companies handle data and limit unfair competition. This has got investors wondering whether is the right time to buy or sell BABA shares.

Alibaba – Technical Analysis

According to Alibaba’s financial statement, The company has a market cap of $502.624 billion with total assets worth $265.46 billion. Alibaba’s revenue for 2020 was at $105.80 billion with a profit margin of 20.96% compared to $73.16 billion in 2019. BABA shares have dropped by more than 4% to close at $173.73 as of August 17^th (19:59 UTC-4).

On the technical side, moving averages such as Exponential Moving Average (100)(214.72), Simple Moving Average (100)(215.65), Exponential Moving Average (200)(225.79) and  Simple Moving Average (200)(235.19) are giving strong sell signals. On the other hand, the majority of oscillators Relative Strength Index (14)(25.87), Stochastic %K (14, 3, 3)(15.12), Commodity Channel Index (20)(−237.59) and Average Directional Index (14)(18.80) are overwhelmingly neutral.

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Recent Developments

Currently, BABA shares are down 4.9% as a result of the proposed regulations, reaching $173.73 which is its lowest since 2019’s October. The company’s depository receipts in the U.S. have fallen more than 25% in 2021. China’s top market regulators released new guidelines which prevented the country’s internet companies from applying forced exclusivity. The new guidelines are a part of a bigger series of interventionist moves enacted by Chinese regulators. This has fuelled share price declines in tech companies even though U.S. indices have risen to record highs. Additionally, the decision by Securities and Exchange Commission Chairman Gary Gensler to require Chinese companies to offer more disclosures has added pressure on Alibaba.

The Company also attracted unwanted media attention recently when details of an alleged assault case inside the company were made public. Authorities have detained a former manager at Alibaba on suspicion of sexual assault. The alleged incidents took place last month at a company dinner and subsequently at a hotel as per a statement released by police. The victim also alleged that the company initially failed to appropriately respond to her investigation request. Jack Ma, Alibaba’s founder has been struggling to contain the backlash from the case and the company has already fired the manager last week.

Should You Buy BABA Shares?

Alibaba’s continuous growth has put the company at a lower valuation even though its share price is declining. The price to sales ratio of the shares today is under 4 compared to 8 last fall. With the company expected to earn around $9.70 per share in 2021, many investors believe that BABA shares are inexpensive. With the company’s ability to grow its revenue by almost 30% and its dominant position in the Chinese market, BABA shares look inexpensive at the moment.

However, investors have to consider some major risks too. Particularly, the company has been pressured by various regulatory and political groups which have made its shares un-investible for many. This is one of the major reasons why BABA shares have lagged behind the market for the past year. As China’s government follows an interventionist policy from time to time, there is no for investors to ascertain these political risks. However, the shares could unleash strong returns if investor sentiment turns more favourable, making it an interesting investment for bold investors.

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