Chinese e-commerce behemoth Alibaba stock (NYSE: BABA) has lost about 14% of its value over the past month, underperforming the S&P 500 which has remained roughly flat over the same period. So what are some of the trends driving Alibaba stock?
Earlier this month, China imposed fines on technology giants for failing to properly report past deals, with five transactions carried out by Alibaba highlighted by the regulator. Although the potential impact of the fines, which are pegged at a maximum of RMB 500,000 or about $75,000 per case, would likely be small for Alibaba, investors are concerned that this could signal renewed regulatory concerns for the company. Separately, there have been mounting concerns about the Chinese economy, given the tough real estate market and the country’s stringent zero Covid policy which is also weighing on large tech players.
That said, there have been a couple of positive developments for Alibaba stock as well in recent weeks. For one, the stock has seen some analyst upgrades in recent weeks, with the overall sentiment among brokerages remaining positive. Moreover, Alibaba recently announced that it would file for a primary listing on Hong Kong exchanges while keeping its listing in the United States. The dual listing would open up the stock to a lot more capital from mainland China, compared to its current secondary listing. The move also gives the company a backup of sorts, if it is forced to delist from the U.S. exchanges, amid the ongoing frictions between the U.S. SEC and China relating to the auditing compliance of Chinese companies listed on U.S. exchanges.
Overall, we still believe that Alibaba’s stock is undervalued. At its current market price of about $101 per share, Alibaba trades at under 14x 2023 earnings. The multiple falls to just about 10x if we exclude Alibaba’s sizable $70 plus billion in cash holdings. Alibaba is still expected to grow at a reasonable pace in the coming years. Consensus estimates point to over 7% growth for FY’23 and around 13% growth for FY’24. In comparison, Amazon trades at over 45x projected 2023 earnings, with projected revenue growth rates only slightly above Alibaba’s. Alibaba’s management also seems to think its stock is undervalued, as it raised its share buyback program to $25 billion up from $15 billion around March, marking its second increase in just about a year. We estimate Alibaba valuation at about $148 per share indicating a potential upside of 45% over the market price. See our analysis of Alibaba revenues for more details on how Alibaba’s revenues are likely to trend.
|S&P 500 Return||4%||-18%||75%|
|Trefis Multi-Strategy Portfolio||6%||-18%||221%|
 Month-to-date and year-to-date as of 7/27/2022
 Cumulative total returns since the end of 2016