Nasdaq BABA Alibaba

The descent in Alibaba (BABA) stock continues, despite the Chinese tech giant having started FY22 on a solid note, including double-digit growth in revenues.  

To give a little background, Chinese tech stocks, including Alibaba, are under pressure amid China's heightened regulatory scrutiny. Alibaba stock has lost over 50% of its value in the last 12 months. Meanwhile, it has declined by about 40% this year. Regardless, I maintain a Bullish outlook on BABA stock.

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Adding to its pain is the weakness in China’s macroeconomic environment. Taking note of the situation, Needham analyst Vincent Yu reduced his Q2 estimates for Alibaba. Yu said that China’s economy took a hit from the resurgence of the coronavirus in some of its key provinces, as well as from the Zhengzhou flood. 

Citing the recent NBS (National Bureau of Statistics) data from China, Yu stated that the total year-over-year retail growth rate decelerated considerably to 2.5% in August, from 12.1% in June. Meanwhile, the total online retail growth rate slowed to 6.1% from 13.9% in June. 

He added that macro weakness hurts “discretionary consumption, including apparel and home appliances, which are Alibaba’s key categories.” 

Yu expects the weakness in the macro environment to take a toll on Alibaba’s sales. Accordingly, Yu lowered Alibaba’s China commerce revenue estimates by 7%. Moreover, he reduced the Q2 EPS estimate to $0.83 from $1.05. In addition to macro weakness, Alibaba’s strategic investments are weighing on its margins.

Nevertheless, Yu expects Alibaba to continue to add new users and to gradually expand its market share. Further, he finds Alibaba’s current valuation “very attractive.” He maintains a Buy rating on Alibaba stock with a price target of $330, reflecting a massive upside potential of 136.3%. 

Interestingly, investors’ sentiment has improved on Alibaba stock. TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks currently have a Very Positive outlook on Alibaba stock, with 1.3% of these investors increasing their exposure in the last 30 days. 

Overall, Wall Street has a positive outlook on Alibaba stock. Its analyst rating consensus of Strong Buy is based on 23 Buys, 2 Holds, and 1 Sell. The average Alibaba price target of $246.21 implies 76.3% upside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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Japanese shares tumbled to one-month lows on Tuesday, with growth-oriented shares hit hard, as spikes in oil prices stoked further worries about inflation and monetary tightening globally.

Japanese shares tumbled to one-month lows on Tuesday as spikes in oil prices stoked further worries about inflation and monetary tightening globally.

What happened Alibaba (NYSE: BABA) stock continued to spiral in September as investors responded to an increasingly difficult regulatory environment. Concerns about Chinese real estate giant Evergrande going into default also spooked Chinese stocks.

“One-two punch definition: Two unpleasant things that happen together,” says the Cambridge Dictionary. It certainly feels like Alibaba (BABA) is right now on the receiving end of this dual blow.

Not only does the Chinese ecommerce giant currently have to contend with the prospect of slowing growth, but it is also facing an increasingly strict regulatory environment, as the Chinese government has been flexing, cracking down on any segment or organizations deemed to have gotten – to use another well-worn phrase - too big for their own boots.

These factors are a concern for Raymond James analyst Aaron Kessler. While long-term, the 5-star analyst remains “positive” on Alibaba, with the stock’s year-long descent (down 52% over the past 12 months) providing an “attractive” valuation, the analyst says, “recovery in shares could take longer.”

While the constantly changing regulatory landscape is difficult to navigate and is an overhang due to general uncertainty, the slowing growth is more tangible and evident in the numbers.

According to the National Bureau of Statistics of China, in the September quarter (based on quarter-to-date data), China eCommerce growth has slowed to ~8% year-over-year. This follows on from roughly 13% growth in the June quarter and ~26% in the March quarter.

Ecommerce growth has come under pressure from several directions; covid-related “intermittent lockdowns,” a decelerating growth outlook for Real Estate, and problems in the supply chain including recent power outages have all played their part.

“While some of these are transitory,” Kessler noted, “We believe these factors are weighing on consumer retail growth near-term and there is increased uncertainty in terms of a growth recovery.”

As such, for the September quarter, the analyst now expects China retail to show growth of 9% compared to the previous 16% estimate. There’s also a reduction of FY22/FY23 retail growth estimates, which move from 16% for each to 11% and 13%, respectively. Accordingly, Kessler also lowered his FY22/FY23 revenue expectations by 2%/3% while reducing EBITA estimates by 8%/11%.

It all results in a downgrade. Kessler cut his rating from Strong Buy to Outperform (i.e. Buy), while reducing his price target from $300 to $240. Nevertheless, despite these actions, investors still stand to take home returns of 73%, should the target be met over the one-year timeframe. (To watch Kessler’s track record, click here)

Turning now to the rest of the Street, where the average target is just above Kessler’s; at $247.67, the figure is set to provide 12-month gains of a strong ~79%. Most analysts remain in BABA’s corner; based on 23 Buys vs. 2 Holds and 1 Sell, the stock boasts a Strong Buy consensus rating. (See BABA stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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For 18 months, Wall Street and investors have enjoyed an historic ride. The widely followed S&P 500 has effectively doubled off of its bear-market low, marking the strongest bounce-back rally from a bear market bottom in history.

One recurrent headline appearing on financial news boards fairly regularly over the past few months goes pretty much like this: Why are shares of “insert Chinese tech/education/internet company here” falling?

The answer most of the time is due to a crackdown on… everything? Of course, amongst those nursing wounds from the tightened Chinese regulatory environment is Alibaba (BABA). As a result, shares of the ecommerce giant have been on a downward spiral for most of the year; the stock has shed an alarming 36% of its value year-to-date.

Perceived wisdom would say now might be the time to load up on shares of this internet giant. J.P. Morgan’s Alex Yao thinks so but his recommendation comes with caveats.

“We turn more cautious on Alibaba’s domestic ecommerce growth outlook in the coming quarters,” the analyst wrote. “Single-digit percentage YoY growth for domestic ecommerce GMV and revenue will become a new norm in the next few quarters, in our view, as we think regulation changes in a wide range of industries (e.g. property, education, manufacturing, Internet, healthcare, etc.) will lead to prolonged consumption weakness.”

As 84% of China’s internet users are Alibaba consumers, while 29% of China’s average resident disposable income is spent on the platform, Yao thinks there is “little room for contra-cyclicality in the near term.” Factor in the company’s commitment to heavily invest in certain segments which will “further weigh on near-term margins” and Yao’s FY22/23 adjusted EPS estimates are 17%/18% lower than consensus estimates. More forlornly, Yao doesn’t see “any catalysts for the stock to outperform on a two-quarter view.” Value could be “unlocked” once the regulatory environment stabilizes, but that is likely a “1H22 event.”

That said, the slide has been so violent, that even with the muted outlook, the stock is “undervalued” and worthy of an Overweight (i.e. Buy) rating, according to Yao. More impressively, the analyst gives BABA shares a $255 price target, suggesting room for a 72% uptick over the next 12 months. (To watch Yao’s track record, click here)

Overall, while sentiment has shifted around Alibaba, it still receives overwhelming Street support; based on 24 Buys vs. 2 Holds and 1 Sell, the stock boasts a Strong Buy consensus rating. Meanwhile, the $256.92 average price target is a touch above Yao’s, and suggests one-year returns of a robust 73.5%. (See Alibaba stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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