Alibaba Stock Price Forecast October 2021 – Time to Buy BABA Stock?

Alibaba (BABA) stock has been in the news for mostly not-so-good reasons. The stock is still down 26% for the year even as it has jumped over 21% from its recent lows. We’ve seen a recovery in some of the other beaten-down Chinese stocks also, including the EV (electric vehicle) companies.

What’s the forecast for BABA stock after the sharp rebound from the lows and is it still a good buy?

BABA stock recent developments

In September, Alibaba had announced that it would invest $15.5 billion by 2025 to promote common prosperity in China. The investment comes amid the push by the Communist government to address the growing wealth inequality in the country.

Earlier this year, Alibaba paid a record $2.8 billion fine to the Chinese government to settle the antitrust case.  Last year, BABA’s co-founder Jack Ma had made critical comments about the country’s financial system. Post that, not only was the IPO of Ant Financial blocked by the Chinese government but Ma himself wasn’t seen in public for months. However, since then, the company has been making several overtures to the authorities.

Meanwhile, there hasn’t been any major crackdown by China on its tech companies which has helped support a recovery in Chinese stocks, including Alibaba. That’s said, the growing tensions between China and Taiwan could make investors apprehensive about investing in Chinese companies.

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Alibaba earnings

Alibaba is expected to report its fiscal second-quarter 2022 earnings early next month. Analysts polled by TIKR expect the company’s revenues to rise 36.4% to $32 billion in the quarter. However, its sales growth is expected to fall to 23.8% and 19.7% in the next two quarters respectively.

The company is expected to post an adjusted EPS of $1.98 in the quarter, 27.1% lower than the corresponding quarter last year. Notably, some of the analysts have been concerned about a slowdown in BABA’s earnings amid concerns over the health of the Chinese economy, which accounts for the bulk of Alibaba’s earnings.

Analysts on BABA stock

Daiwa Capital Markets Hong Kong cut Alibaba’s earnings estimates and said the company is facing “one of the most challenging quarters.” Raymond James also recently expressed concern over the slowing growth in China and downgraded Alibaba stock from outperform to strong buy.

“While we remain positive on Alibaba long-term and believe valuation remains attractive…we believe the recovery in shares could take longer given the recent slowing of e-commerce growth combined with continued regulatory actions across China,” said Raymond James analyst Aaron Kessler while lowering BABA’s target price from $300 to $240.

Kessler is also concerned about the “intermittent lockdowns” and supply chain issues. “While some of these are transitory, we believe these factors are weighing on consumer retail growth near-term and there is increased uncertainty in terms of a growth recovery,” he said in the note. KeyBanc analyst Hans Chung also lowered BABA’s target price from $250 to $200.

Alibaba stock forecast

Meanwhile, while some of the analysts have lowered Alibaba’s target price, the consensus projections are still quite bullish for the stock. Of the 25 analysts covering BABA stock, 23 have a buy rating while one each rates it as a hold and sell. The stock’s average target price is $274.04 which is a premium of 47% over current prices. Its highest and lowest target prices are $330 and $190 respectively.

BABA stock long term forecast

China’s tech crackdown has somewhat dented the long-term forecast for Chinese stocks like Alibaba. Also, the Chinese economy might not grow at the same pace as we saw in the previous five years. To add to that, China’s tech crackdown coupled with the US-China rivalry has led to structural deterioration in the valuations of Chinese companies.

Even Cathie Wood of ARK Invest sold most of the Chinese stocks warning of a valuation reset. That said, BABA is among the best ways to play the growth in China’s consumer spending. The country is pivoting from an investment-led to a consumption-led economy which would help lift the consumer demand. Also, as retail continues to move online in China, it would help lift the revenues for Alibaba, albeit the pace of growth might be lower than the previous years.

Alibaba’s cloud operations have also turned EBITDA positive and are expected to further improve their performance. Overall, after the crash from the peaks, BABA stock looks attractive if you can digest the near-term risk and volatility.

Should you buy BABA stock?

BABA stock trades at an NTM (next-12 months) PE multiple of 17.8x which is much lower than global peers. Even if we apply a discount for the stock amid the regulatory crackdown in China, the risk-reward would appear attractive.

Looking at the charts, BABA stock has crossed above the 50-day SMA (simple moving average) as well as the 10-day, 20-day, and 30-day SMA, which is a bullish technical indicator. However, the stock still trades below the 100-day and 200-day SMA. The 14-day RSI (relative strength index) is 59.6 which is a neutral indicator while the 12,26 MACD (moving average convergence divergence) gives a buy signal.

Overall, BABA stock looks like a good buy at these prices. Unless China really messes up with the crackdown, or the US-China rivalry gets too out of control, Alibaba stock could deliver good returns over the long term.

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