Here’s When to Make Your Move With Weakened Alibaba Stock

If you would have told me two years ago that Alibaba Group Holding (NYSE:BABA) stock would be priced at less than $100 without going through a stock split, I would have thought you were crazy. But that’s where we are. BABA stock continues to falter, now below $90 and comfortably below its 200-day and 50-day moving averages. And there doesn’t seem to be any indication that Alibaba will return to its previous highs of more than $300 any time soon.

Alibaba did have a nice little recovery in March, as BABA stock rallied on news that Beijing ordered domestic companies to open their financial records to auditors. That seemingly solved any concerns that Chinese stocks could be delisted in the U.S. if they aren’t more forthcoming with their finances. And while that took BABA stock from $76 to $117 in a matter of days, the gains were short-lived. And now Covid-19, the pandemic that just won’t go away, is throwing another wrench into Alibaba’s comeback bid.

Bloomberg reported that analysts are raising new concerns over Chinese tech stocks, lowering profit projections by an average 4% for members of the Hang Seng Tech Index. Among those names, analysts trimmed Alibaba stock’s estimates by 4.2%. Jessica Tea, investment specialist at BNP Paribas Asset Management Asia Ltd. in Hong Kong, explained the reasoning:

“After the sustained regulatory tightening, the Covid resurgence in recent months and the stringent zero Covid policy are likely to exacerbate a slowdown in revenue growth for a number of companies, particularly the internet ones.  […] Slower sales are likely to impact future profits, translating into shrinking earnings expectations.”

On top of that, David Chao, a global market strategist for Asia Pacific ex-Japan at Invesco Hong Kong Ltd., said that Chinese tech companies are being affected by both supply-chain problems and a downturn in household and business spending. “The sector’s earnings trend is directly linked to how authorities evolve existing pandemic policies,” he said. And plenty of analysts agree. UBS (NYSE:UBS) dropped its price target on BABA stock from $150 to $140. HSBC (NYSE:HSBC) analysts dropped their target from $168 to $156. And Benchmark dropped its price target from $235 to $220.

Granted, all of those price targets are far above where BABA trades now. And I think there is a lot to like about Alibaba in general, given its enviable position for continued growth in China and southeast Asia.

Alibaba is the closest thing you’ll find to Amazon (NASDAQ:AMZN) in China, as it operates a massive e-commerce space and has a growing cloud division. And there is more room for growth in BABA than with Amazon stock. But it’s going to take some time for those gains to come. Currently, the 50-day moving average for BABA stock is at $102.85. I would wait for Alibaba’s stock to find renewed support at the $100 level before initiating a new position.

On the date of publication, Patrick Sanders did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.

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