Alibaba Stock Price Falls 13% – Time to Buy BABA Stock?

Chinese stocks have looked weak this year amid the country’s crackdown on the tech sector. Alibaba stock is down 13% in 2021 and recently hit a 52-week low. What’s the forecast for BABA stock and should you buy the stock dip?

Alibaba stock has looked weak since it was targeted by China in an antitrust probe last year. The country also blocked the IPO of Ant Financial where BABA holds a third of the stake. Earlier this year, Alibaba agreed to pay a fine of $2.8 billion in the antitrust case.

Alibaba stock technical analysis

BABA stock looks bearish on the charts. The stock has faced strong resistance at the 100-day SMA (simple moving average) and currently trades below all SMAs including the 10-day, 30-day, 50-day, and 200-day SMA. The 12,26 MACD (moving average convergence divergence) also gives a sell signal. The 14-day RSI (relative strength index) of 42.3 indicates neither overbought nor oversold positions.

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BABA stock recent developments

Alibaba released its fiscal first-quarter 2022 earnings yesterday. While the earnings were better than expected, the stock fell. The company’s revenues increased 34% YoY to $31.8 billion in the quarter. After excluding Sun Art, the company’s revenues increased 22% to $29 billion. Analysts expect the company’s revenues to rise 28.7% in the fiscal year 2022 and 21% in the fiscal year 2023.

The company reported annual active customers of 1.18 billion in the 12 months period ended 30 June, which was 45 million higher than the corresponding period in the last year. The company had 912 million users in China while the remaining 265 million are in global markets.

“We delivered strong revenue growth of 34% year-over-year. As we said in last quarter’s results announcement, we are investing our excess profits and additional capital to support our merchants and invest in strategic areas to better serve customers and penetrate into new addressable markets,” said Maggie Wu, Chief Financial Officer of Alibaba Group.

Cloud business

Alibaba’s cloud business reported a 29% yearly rise in revenues. The growth rates have come down due to the loss of a major customer which many believe is Bytedance. Commenting on the cloud business, BABA said that “Going forward, we believe that our cloud computing revenue will be further diversified across customers and industries.”

Alibaba increases buyback

Alibaba also increased the buyback program from $10 billion to $15 billion. Notably, the company had announced the $10 billion buyback program earlier this year only amid the slide in its stock price. However, the record buyback could not offset the impact of China’s regulatory crackdown.

The company also boosted its spending in order to strengthen its market-leading position in the Chinese e-commerce market. The company also commented on the regulatory crackdown in China and CEO Daniel Zhang said “We are in the process of studying the regulatory requirements, evaluating the potential impacts on our relevant businesses and we will respond positively with actions.” He added, “We believe all these new regulations aim to foster healthy development of the internet industry in the long run.” Unlike the US, Chinese companies have few options but to meekly comply with the regulations.

Alibaba stock forecast

Meanwhile, Wall Street analysts are bullish on Alibaba stock and its median target price of $285.09 implies an upside of 45% over current prices. Its lowest target price is $192.32 which is a discount of over 2.5% while the highest target price of $351.77 is a premium of 78% over current prices.

Of the 58 analysts polled by CNN Business, 54 rate BABA stock as a buy while three rate it as a hold. Only one analyst has a sell or equivalent rating on the stock. UBS analyst Jerry Liu is bullish on the stock. “We believe the risk/reward for the stock should slowly improve from here,” said Liu. He added, “Regulation continues to tighten but competitive concerns are the key right now, in particular as Alibaba embarks on an investment cycle.”

Meanwhile, Cathie Wood has turned bearish on Chinese stocks and has been selling many of the Chinese names that ARK Invest was holding. She sees a deterioration in valuation multiples of Chinese stocks amid the regulatory crackdown.

Should you buy BABA stock now

BABA stock trades at an NTM (next-12 months) PE multiple of 19.5x which is near their all-time low of 19x. While there has been a valuation multiple contractions for Chinese stocks amid the regulatory crackdown, the valuation multiples look attractive. The worst seems to be over for Alibaba and the crash looks like a good buying opportunity.

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