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Alibaba (BABA) sold off hard Monday, along with other U.S.-listed Chinese stocks, after Chinese President Xi Jinping was confirmed to a historic third term. Alibaba stock is at its lowest level since September 2015, selling at 10x trailing earnings, but is BABA stock a buy right now?
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Chinese stocks have seen their share of headlines lately. Earlier this month, sentiment was weak around Chinese stocks after the Biden administration announced new restrictions on China’s access to U.S. semiconductor technology, including restrictions on the exports of some types of chips used in supercomputing and artificial intelligence. It also imposed tighter rules on the sale of chip equipment to China.
Alibaba stock rallied sharply in late August on reports that Beijing and U.S. regulators were close to an audit-inspection deal.
In late July, the U.S. Securities and Exchange Commission added Alibaba to a list of Chinese firms at risk of being delisted for not opening their books to U.S. accounting regulators.
Alibaba Stock News
Buyers lifted Alibaba stock on Aug. 4, but BABA stock, closed well off highs after the company announced a partnership with Chinese EV maker Xpeng (XPEV). Xpeng is opening a computing center that will use Alibaba’s cloud division to work on software for driverless cars. Alibaba was an investor in Xpeng before the news.
Headline flow has been busy around Chinese stocks in recent months. Chinese stocks rallied on July 7 on a Bloomberg report that China is considering letting local governments sell up to $220 billion in bonds for infrastructure spending.
Alibaba stock jumped on June 17 but pared early gains after Reuters reported that China’s central bank accepted Ant Group’s application to set up a financial holding company.
In early November 2020, Chinese authorities suspended the $34.5 billion Ant Group IPO in Shanghai and Hong Kong. Ant Group is the fintech arm of Alibaba. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
Sentiment was also positive around Alibaba stock and other Chinese stocks like JD.com (JD) and Pinduoduo (PDD) in late April. That’s when Bloomberg reported that Beijing is in talks with the U.S. to allow regulators to conduct on-site audits of U.S.-listed Chinese firms.
Recent Earnings
In early August, Alibaba reported fiscal first-quarter revenue of $30.7 billion, down nearly 4% from the year-ago quarter but slightly above the consensus of around $30 billion. Adjusted profit of $1.75 a share was also above the $1.58 consensus.
Alibaba’s China commerce segment fell 1% to $21.19 billion. Alibaba’s cloud segment did revenue of $1.59 billion, up 10% year over year.
Alibaba stock gapped up in late May after the company reported adjusted profit of $1.25 a share, down 20% from the year-ago quarter but above the consensus estimate for $1.07. Revenue increased 13% to $32.2 billion, helped by strength in its domestic e-commerce business.
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In a sign of confidence about its business, Alibaba announced it would increase its buyback program to $25 billion from $15 billion. It’s already bought back 56.2 million shares for $9.2 billion.
Alibaba hasn’t announced an earnings date yet, but last year the company reported on Nov. 18.
Sellers Hit BABA Stock
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks for the past couple of years. Besides a strict regulatory environment, Chinese stocks are also dealing with a slowing economy, Covid shutdowns, supply-chain issues and inflation.
In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend. But the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com, among others.
Alibaba soared 10% on Dec. 6 on news of a management shakeup and an overhaul of its ecommerce business. Maggie Wu departed as chief financial officer in April. Her replacement, Toby Xu, joined Alibaba in July 2018 and was appointed deputy chief financial officer in July 2019.
Alibaba also announced plans to restructure its ecommerce operations by forming two new digital commerce divisions, focused on international and domestic markets.
Meanwhile, investor reaction was tepid to the company’s Investor Day on Dec. 16-17. Soon after, BABA stock slumped nearly 4% on Dec. 22 after China’s IT regulator disciplined the company for not reporting an open-source security vulnerability to the government.
Alibaba Stock Fundamental Analysis
It’s hard to find a company with a more impressive track record of growth than Alibaba. The company has a five-year annualized earnings growth rate of 18%, although earnings have declined for four straight quarters.
Expectations were high for Alibaba’s Singles Day annual shopping event in November, China’s biggest shopping day. The company didn’t disappoint with sales of $84.5 billion, up from $74.1 billion in the year-ago period.
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The company has been able to deliver top-line growth despite a slowdown in its core e-commerce business.
Alibaba’s business in China looks a lot like Amazon’s in the U.S. Alibaba’s cloud-computing business is showing solid growth, just like Amazon’s booming web services business.
BABA Stock: Sluggish Ratings
Alibaba’s Composite Rating of 26 (on a scale of 1-99 with 99 being the best) has been hurt mainly by weak price performance in recent months.
Annual return on equity of 15% helps it earn a solid SMR Rating (sales + margins + return on equity) of B from IBD Stock Checkup (on an A-to-E scale with A tops).
The Stock Checkup tool quickly identifies group leaders based on a combination of fundamental and technical factors.
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Alibaba is expected to earn $7.28 a share in its current fiscal year 2023, down 12% compared to fiscal 2022. But growth is expected to pick up in 2024, up 9% to $7.96.
Click here to the top-rated stocks in the group.
Alibaba Stock Technical Analysis
Alibaba’s relative strength line has started to point downward amid recent selling pressure.
A stock’s relative strength line, found in daily and weekly charts at Investors.com, compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba stock broke out over a trend line on May 26, helped by a strong earnings report. It didn’t take long for BABA stock to reclaim its 50-day moving average. Alibaba was sandwiched between its 50-day line and 200-day line for a while, but support gave away
Alibaba’s Accumulation/Distribution Rating has fallen to D.
BABA Stock: Is It A Buy Now?
Overhead supply is an issue for BABA stock, with Alibaba more than 60% off its high. That means Alibaba stock is not a buy now. A decisive move above the 50-day line would be good to see, but even if BABA stock does that, the 200-day line just over 100 is a potential resistance level to watch.
Follow Ken Shreve on Twitter at @IBD_KShreve for more market insight and analysis right now.
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