Although Alibaba shares have pared last week’s losses, the stock still remains undervalued.
- Alibaba (NYSE: BABA) shares closed 1.5% higher on Tuesday (31 August 2021)
- The e-commerce stock has retraced nearly all of last week’s sell-off
- Last week, the stock fell nearly 8% amid ongoing regulatory concerns and new workplace controversies
- IG analyst Yeap Jun Rong says Alibaba’s current lower valuation suggests ‘markets are still having doubts in its ability to weather regulatory reforms’
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Alibaba stock price analysis: what’s the latest?
Alibaba shares closed higher for a second straight day on Tuesday, as new investors bought into the shares after last week’s massive sell-off.
The e-commerce stock has recovered 7% so far this week, with its Hong Kong listing trading at HK$167 as at 12:30 HKT on Wednesday (01 September).
Meanwhile, its American Depositary Shares ended Tuesday’s session 1.5% higher at US$167 each.
Alibaba shares are down by nearly 25% in the last three months, as regulatory crackdowns continued to impact the business. The stock continues to trade nearly 50% below its historic peak price of US$310, recorded in October 2020.
IG Asia market strategist Yeap Jun Rong says that Alibaba's current lower valuation and weaker price performance as compared to its peers, such as JD and Pinduoduo, ‘seem to suggest that markets are still having some doubts in its ability to weather regulatory reforms’.
‘This will only be able to draw greater clarity over time,’ he adds.
Alibaba’s current price-to-earnings ratio of 19.25 is also well under its 2020 peak of 42.85. While this shows that the company is now undervalued, other investors might view this as an opportunity to stock up shares.
Despite the stock price’s downward trend, analysts have given Alibaba’s NYSE shares a consensus price target of US$304, which equates to a potential 82% upside.
Out of 28 analysts polled, 24 have also rated the stock a ‘buy’, based on the latest MarketBeat data.
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*Based on revenue excluding FX (published financial statements, June 2020)
Why is Alibaba’s share price falling again?
Last week, Alibaba shares plunged nearly 8% to a two-year low of US$158 a share, as going regulatory concerns were compounded by reports of sexual assault against a female employee.
On Friday (27 Aug), the city of Tianjin instructed municipally governed companies to migrate their data from private cloud solutions providers like Alibaba and Tencent to a state-backed cloud platform by next year.
Such moves are expected to take place nationwide, as the Chinese government continues its push for data security. This will undoubtedly hit Alibaba’s cloud services revenue in the long run.
Then on Monday (30 Aug), the group fired 10 employees for sharing screenshots of the said female staff’s 11-page post on a public forum. The original post was shared on the company’s intranet.
Kelvin Ong | Financial writer, Singapore
01 September 2021