Alibaba Stock Up 5% in September – Time to Buy BABA Stock?

The price of Alibaba stock has experienced a mild recovery during September as it has advanced 5% so far since the month started as the Chinese government has continued to roll out more rules that aim to regulate its largest corporations.

However, shares of the Asian e-commerce giant remain submerged on a pronounced downtrend that started back in October 2020 only a few days before encouraging vaccines-related news from Pfizer (PFE) broke as market participants feared that the tailwind provided by the pandemic to Alibaba’s business would start to progressively fade.

Could this latest rebound in the price of BABA stock result in a full-blown reversal of its recent downtrend or is Alibaba poised to succumb to the ongoing pressure of the Chinese government?

In the following article, I’ll take a closer look at BABA’s latest price action and fundamentals of the company to outline plausible scenarios for the third quarter of 2021.

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Alibaba Stock Price – Technical Analysis

So far this year, Alibaba has lost more than a quarter of its value as concerns about a potentially severe crackdown in the Chinese tech sector led to a sustained sell-off.

The downtrend for BABA stock started only a few weeks before the Pfizer vaccine news of November 2020 broke as the Chinese government abruptly halted the initial public offering (IPO) of Ant Group – a company that is partially owned by the e-commerce giant.

Meanwhile, a series of harsh regulatory measures aimed toward curving other sectors of the economy including private education, delivery services, and a selected group of tech businesses resulted in further downside for Alibaba stock.

As of now, the stock appears to have bounced off a key support found at the $150 level that may be forming a double-bottom bullish pattern for BABA stock. This view is reinforced by the above-average trading volumes seen on 23 August, back when the stock tagged this important threshold, as almost 89 million shares exchange hands on that day – a figure that exceeded the 10-day average by almost three times.

Moreover, both the Relative Strength Index (RSI) and the MACD are emerging from deeply oversold levels, which reinforces a short-term bullish outlook caused by a technical bounce.

In this regard, it is important to note that stocks don’t usually decline vertically to zero. This means that even though this latest uptick might seem promising at first glance, it could result in what Wall Streeters know as a “dead cat bounce”, which is a temporary recovery in the price of a heavily battered stock.

Therefore, unless the price of BABA stock manages to reverse the long-dated downtrend shown in the chart above, the technical outlook for it remains bearish.

Alibaba Stock price – Fundamental Analysis

Chinese stocks are among the most underweight in the portfolio of investment funds at the moment due to the regulatory pressures that these companies are experiencing back home.

As a result, the valuation of Alibaba has declined to a point that the stock seems cheap from a fundamental standpoint.

First and foremost, Alibaba’s past growth had already been outstanding before the pandemic started as the company more than quadrupled its top-line results from 2017 to 2020.

Moreover, the firm’s profit margins, even though on a downtrend, remain solid as reflected by its 22% EBITDA margin and 21% net income margin. Moreover, the company has interests in multiple growing segments of the tech market including financial technology, cloud services, and even artificial intelligence.

At its current price of $170 per share, the stock is trading at only 17 times its forecasted earnings per share for the next twelve months despite displaying an accelerated historical EPS growth of 35.4% in the past four years.

This results in a price-to-earnings-to-growth (PEG) multiple of 0.5, which means that BABA qualifies as a heavily undervalued stock.

However, investors should not underestimate the political and regulatory risks that the company is currently facing as nobody can really predict the extent to which the Chinese government will intervene to curve the growth and influence of the country’s top corporations. This means that the stock may continue to drop if further hostile policies are pushed forward.

In this regard, investors should only risk money they can afford to lose when taking a position in a company like Alibaba amid the significant uncertainty surrounding its outlook and future prospects.

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