Alibaba Stock Up 5% Today – Time to Buy BABA Stock?

The price of Alibaba stock is up 5% today after it managed to shake off the market’s concerns about regulatory hostility in China following news that DiDi – the Chinese ride-sharing giant – was being pushed by the country’s authorities to delist its shares from all foreign exchanges.

Even though Alibaba stock dropped as much as 8% on 3 December after the news came out, shares bounced and posted gains of more than 10% in yesterday’s stock trading action after China’s Securities Regulatory Commission (CSRC) stated that they “fully respect” the decision of Chinese businesses to list their shares in foreign markets.

In a statement released a few days ago, the CSRC said that they have made “positive progress” in terms of auditing requirements imposed by the US Securities and Exchange Commission (SEC) to permit the listing and trading of Chinese securities.

The regulator also addressed concerns related to the latest hostile measures taken by the Chinese government against largest corporations in certain strategic sectors of the economy.

In this regard, the CSRC stated that these actions “aimed at limiting monopoly, protecting SMEs, safeguarding data and personal information security, and preventing the disorderly expansion of capital”.

However, the regulatory body added that “relevant policy initiatives of the Chinese government are not targeted at specific industries or private companies, nor are they necessarily connected to overseas listing of Chinese companies”.

Market participants appear to have been assured to some extent by this response from the CSRC and it may have dissipated some of the concerns that have prompted the latest downtrend in the value of Chinese stocks.

In other important news concerning the company, Alibaba (BABA) appointed Toby Xu as its new Chief Financial Officer who will be replacing Maggie Wu. This move was part of a planned transition.

Can it be enough to prompt a full-blown reversal in Alibaba stock? In this article, I’ll be assessing the price action and fundamentals to outline plausible scenarios for the future.

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Alibaba Stock – Technical Analysis

News from the CSRC came at a critical moment from a technical standpoint as Alibaba stock dipped below what could be considered the last relevant support area before another double-digit meltdown.

Even though Friday’s decline broke that horizontal support – found at the $130 level – yesterday’s uptick is now attempting to recoup that lost territory. Meanwhile, this morning’s pre-market uptick is pushing the price to retest that threshold.

Yesterday’s trading volumes exceeded the 10-day average by around 1.7 times and prompted a bounce in momentum readings. However, Alibaba stock remains heavily overextended to the downside as it is trading well below its short-term moving averages and 37% below its 200-day simple moving average.

It is still too early to tell if this advance will prompt a full-blown trend reversal in Alibaba stock as the price remains confined within the sharp falling wedge formation highlighted in the chart.

A break above this pattern and the stock’s short-term moving averages should be the signal that confirms a bullish thesis. At the moment, some more upside could come if the price keeps climbing on the back of a potential short-squeeze.

Alibaba Stock – Fundamental Analysis

From a fundamental perspective, there is no doubt that Alibaba is one of the most undervalued stocks in the market nowadays if one ignores the political and regulatory risk and solely focuses on the numbers.

From 2013 to 2021, the company’s sales have moved from $5.5 billion to as much as $109 billion by the end of last year while diluted GAAP earnings per share have jumped from $0.57 to $8.35 per share at a compounded annual growth rate of almost 40%.

Even though the market has been concerned lately about the firm’s struggles to keep up with this growth, analysts are still expecting to see the firm posting average earnings growth rates of 15% over the next 5 years or so.

Considering that the company is currently displaying a 13.6x forward P/E ratio, Alibaba’s valuation is quite conservative and reflects the market’s overly pessimistic attitude about the firm’s future amid the latest hostile attitude adopted by Chinese authorities.

If the statement from the CSRC is ultimately interpreted as a sign of good faith from the government to reassure markets that these measures are not part of a political plan to crack down on the private sector or to limit its growth, chances are that the price of Alibaba stock could bounce strongly in the following days as trading multiples will expand.

That said, it remains to be seen if the market is actually convinced by this positive attitude or if this is just a dead-cat bounce and nothing more.

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