BABA is undervalued by about 53%

Alibaba’s stock price is not finding love in the market even after management’s actions to raise prices. BABA stock is trading at $100, nearly 20% below the March high. Shares plunged more than 70% from their all-time high, dragging its market capitalization to around $268 billion. That’s significantly lower than Amazon, valued at over $1.8 trillion.

Why did Alibaba’s stock price crash?

Alibaba’s stock price crashed for several reasons. First, like other big Chinese companies like Baidu, JD.com, Meituan and Pinduoduo, regulators attacked Alibaba. In 2021, he was forced to pay a record fine and ordered to change his privacy settings. This came shortly after the country’s regulators halted Ant Financial’s IPOs in Hong Kong and Shanghai.

Second, BABA’s stock price also fell due to the stock’s growing risks that it could be delisted from the New York Stock Exchange (NYSE). The US government insists its regulators have access to companies listed in China. This means auditors can easily visit and do their due diligence. China rejected these new rules and insisted that its regulators do a good job regulating these companies.

Finally, as the second largest e-commerce company in the world, Alibaba has been affected by continued inflationary pressures. It was also affected by supply chain challenges.

At the same time, these crises have left a company significantly undervalued compared to its peers. For example, it trades at a price-to-sell ratio of 2.05 and a price-to-earnings ratio of 26. Further, its forward PE is 21.67, while the DCF valuation shows that the company is trading at 53.8%. discount, as shown below.

Alibaba DCF Shares

To address this undervaluation, management announced that it would implement a $25 billion share buyback program. Share buybacks are intended to boost stock prices by increasing earnings per share. They also boost investor confidence. However, their effectiveness in achieving this goal has always been questioned in the long term.

Alibaba stock price prediction

The daily chart shows that BABA’s stock price has been on a deep downtrend over the past few months. As a result, the stock has formed a descending trend line shown in black. It is currently between this channel. At the same time, it fell below the 25- and 50-day moving averages.

As a result, Alibaba’s stock price is likely to continue falling in the coming weeks, with bears targeting the next key support at $74. This price is located along the lower side of the channel. A full rebound will be confirmed if the stock breaks above $130.

Alibaba Stock Price Chart

Karen J. Nelson