Alibaba Stock Price Up 27% Today – Time to Buy BABA Stock?

Chinese stocks are up sharply today and Alibaba (BABA) stock is up almost 27%. Why is BABA stock going up and should you buy it now?

Meanwhile, despite the surge today, Alibaba is still trading with a YTD loss. Chinese stocks have been weak over the last year amid the country’s tech crackdown. As for BABA, it has been under pressure since the fourth quarter of 2020 after Chinese authorities blocked the IPO of Ant Financial.

Why are Chinese stocks up today?

Chinese stocks are up today after the state media reported that the country would soon end the crackdown on tech stocks. Also, it would support the listing of Chinese shares abroad. The news comes amid the rising coronavirus cases in China which are putting further pressure on its already slowing economy.

Nonetheless, markets have reacted positively to the news and Chinese stocks are up sharply. Didi, which recently fell to an all-time low, is up almost 50% in early trade. The company went public last year but soon said that it would delist. Chinese authorities were concerned about the massive data of Chinese citizens that Didi processes and feared that it might be compromised.

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Alibaba stock

China’s tech crackdown took a toll on Alibaba and other Chinese stocks. For instance, Ant Financial, where Alibaba holds a third of the stake, has seen its valuations plummet. BlackRock values the fintech giant at $174 billion while T. Rowe Price has put the valuation at $189 billion. Others have an even lower valuation for Ant Financial and Fidelity Investments lowered the valuation to $78 billion last year. Earlier this year, China asked the country’s banks to review their exposure to Ant Financial.

According to Bloomberg Intelligence, “Beijing’s call for China’s banks to check their exposures to Jack Ma’s unlisted Ant Group may jeopardize the company’s ties with financiers for its online-loan business, with our scenario analysis suggesting its valuation could plunge to $63 billion vs. the $320 billion level targeted in the 2020 IPO.”

Fund managers on BABA stock

Charlie Munger has also been buying BABA stock despite all the pessimism. Ashwath Damodaran, who’s known as the “dean of valuation” said last year that he’s now ready to buy BABA stock. He said “At the prices at which it’s trading, I think not withstanding all the worries about corporate governance and the Chinese government, I think it’s well-positioned to be a long-term investment. He called BABA a solid company and said that he likes the stock as a long-term investment.

Daniel O’Keefe, a managing director and portfolio manager at Artisan Partners, believes that BABA is possibly the cheapest non-Russian company in the world.

He said, “Alibaba trades for a single-digit multiple of free cash flow and three or four times EBIT [earnings before interest and taxes]. So, you know, it’s the largest e-commerce company in the world that is levered to digitization and the expansion of the increasing wealth of the consumer and middle class in China.”

JPMorgan downgraded the stock

Meanwhile, JPMorgan is not too bullish on the company and double downgraded it from overweight to underweight. It said, “Due to rising geopolitical and macro risks, we believe a large number of global investors are in the process of reducing exposure to the China Internet sector, leading to significant fund outflows from the sector. Analyst Alex Yao added, “We believe Alibaba, as one of the most widely owned stocks within the China Internet sector, will continue to face stock selling pressure in the near term.”

Last year, Alibaba paid a record $2.8 billion fine to the Chinese government to address the antitrust case. Alibaba had announced that it would invest $15.5 billion by 2025 to promote common prosperity in China. The investment, which would be completed by 2025, comes amid the push by the Communist government to address the growing wealth inequality in the country.

Alibaba is facing a growth slowdown

Meanwhile, China’s crackdown and delisting are not the only risks that Alibaba is facing. The company is also battling a growth slowdown amid the broader slowdown in the Chinese economy. At last year’s Single’s Day annual shopping event, Alibaba reported an 8.5% increase in sales. While sales hit a record high of $84.5 billion, it was the first time that sales growth fell to single digits.

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 55 analysts covering BABA stock, 47 have a buy rating. Six analysts have a hold rating while twos analysts have a sell rating on the stock. The stock’s median target price is $168.72 which is a premium of 75% over current prices.

BABA stock long term forecast

Some observers, including Cathie Wood of ARK Invest, believe that there would be a structural deterioration in the multiples of Chinese tech names. China’s tech crackdown has 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. China’s tech crackdown coupled with the US-China rivalry has indeed led to structural deterioration in the valuations of Chinese companies.

Should you buy Alibaba stock?

Alibaba still looks quite undervalued compared to other e-commerce companies. If not for the regulatory risks and China’s crackdown, BABA would have been a screaming buy at these price levels. However, the stock’s outlook was clouded by the unending crackdown in China and the lack of visibility on Ant Financial’s IPO.

With China signaling an end to the tech crackdown, BABA stock should see better days ahead. The stock might rise further from these levels if China takes concrete steps to show that it is now done with the tech crackdown.

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