Alibaba Stock Price Falls 36% – Time to Buy BABA Stock?

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Alibaba (BABA) stock fell 4% on Friday and hit a new 52-week low of $144.57. The stock is now down 36% in 2021 and trades at a discount of over 54% from its 52-week highs. Should you buy the did in BABA stock?

Alibaba stock has been weak for almost a year now. The company’s troubles predate the current crackdown in China and the Evergrande crisis. The stock currently trades at a multi-year low even as US e-commerce stocks are trading near record highs.

Alibaba stock technical analysis

alibaba stock technical analysis

BABA stock is looking bearish on the charts. It fell below the 200-day SMA (simple moving average) in November 2020 amid the crackdown in China. It managed to cross above the 200-day SMA in January but again plummeted below the trendline in March. The stock currently trades below all the key moving averages, having fallen to a new 52-week low. Alibaba stock has been making new lows and hasn’t been able to cross above the previous highs.

The MACD (moving average convergence divergence) also gives a sell signal. However, the stock looks oversold now and has a 14-day RSI (relative strength index) of 29.2. RSI values below 30 signal oversold positions while values above 70 signal overbought positions.

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BABA stock recent news

BABA stock has been in the news over the tech crackdown in China. Earlier this year, the company paid a record $2.8 billion fine to the government to settle the antitrust case. To be sure, the crackdown in 2021 hasn’t been directed at Alibaba. However, it has impacted some of the investments that Alibaba has made.

For instance, the company is now looking to exit the stake in a state-owned broadcaster. It has said in a release that it intends to sell its 5% stake in Mango Excellent Media, which is owned by state-run Hunan TV. Alibaba also has investments in some of the other media companies and might be forced to sell stakes in them also.

Ant Financial

Last year, China blocked the IPO of fintech company Ant Financial, where Alibaba holds a third of the stake. Earlier this year, there were reports that the country might soon allow the IPO. Notably, Ant Financial was set to become the biggest IPO of all time, surpassing the previous record held by its parent Alibaba. The IPO attracted bids worth $3 trillion and on its listing, its market cap would have surpassed that of JPMorgan Chase, the largest US bank.

Meanwhile, China now reportedly wants to break up Ant Financial. Reports also suggest that state-owned companies might take a big stake in Ant Financial’s credit scoring joint venture. China has been concerned about the growing clout of its tech giants like Alibaba. Under the current leadership, it has taken several measures to clamp down on its tech giants.

Alibaba stock forecast

Looking at the consensus estimates, Alibaba’s forecast looks quite bullish. Of the 55 analysts polled by CNN Business, 49 rate it as a buy or some equivalent. Five analysts have a hold rating while one analyst rates BABA stock has a sell.

Alibaba has a median target price of $259.94 which is a premium of 79.2% over current prices. Its street high target price is $335.91 which is an upside potential of over 131% over current prices.

Cathie Wood sells Alibaba stock

Meanwhile, the market has been divided over Alibaba stock. Cathie Wood of ARK Invest has exited Alibaba shares, like many other institutional investors. Wood has warned of a structural valuation multiple deteriorations in Chinese stocks. “Because of the social engineering it seems or reengineering taking place in China, … the valuations associated with these companies are damaged, and we don’t think they’re going to go up anytime soon,” said Wood.

She added, “China wants to win. The only way they’re going to win is if they embrace innovation as aggressively or more aggressively than any other country. And they’re trying to do that, but I fear for them, that becoming more insular is going to harm their speed in terms of innovation.”

Meanwhile, some of the institutional investors have been buying Alibaba stock. Retail investors have also been adding BABA stock amid the crash. So far, those expecting a bottom in Alibaba stock have been disappointed and it has continued to plunge to new lows.

BABA stock long term forecast

Meanwhile, looking at the long-term forecast, the outlook for Alibaba’s core business looks positive. The company is present in cloud and e-commerce, two of the secular growth stories for the next decade. It has a market-leading position in the Chinese e-commerce market and has also been expanding to international markets.

Analysts expect BABA’s revenues to rise 28.5% in the fiscal year 2022 and 21% in the fiscal year 2023. The company’s net income is expected to fall 3.5% to $27.8 billion in the fiscal year 2022 and then rise 20.7% to $32.3 billion in the fiscal year 2023. The growth outlook for BABA stock looks optimistic. Notably, the company’s cloud operations have also turned EBITDA positive and would contribute significantly to the earnings in the long term. For US-rival Amazon, the cloud has been the most profitable business segment.

Alibaba stock valuation

Alibaba’s market cap has plummeted to almost $400 billion. The stock currently trades at an NTM (next-12 months) PE multiple of 14.8x, the lowest in its history as a publicly-traded company. To be sure, there are plenty of risks that Chinese companies, especially those listed on US markets are facing.

However, the valuations look quite reasonable. If you are willing to withstand the short-term volatility, Alibaba stock could be a multibagger in the long term. This of course assumes that China does not does something drastic about Alibaba or the e-commerce industry. But then, looking at everything, Alibaba could be one Chinese stock worth taking a risk on.

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Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.