Buy Alibaba shares after the brutal sell-off?

The Chinese economy is facing many headwinds, such as ongoing Covid controls, a deteriorating relationship with the US, reduced exports and a housing bubble, which is driving investors away from Chinese companies.

Unpredictable political risks

The first quarter of fiscal 2023 was quite positive for Alibaba, with the company reporting revenue and profit that exceeded analyst consensus estimates.

Total revenue for the first fiscal quarter was $30.69 billion, which was $530 million above expectations, while non-GAAP earnings per share were $1.75 (beating $0.19). Toby Xu, Chief Financial Officer of Alibaba Group, said:

Despite the challenges of the COVID-19 resurgence, we delivered stable revenue performance year-over-year. We reduced losses in key strategic businesses, given continued improvements in operational efficiency and increased focus on cost optimization.

Alibaba continues to dominate the Chinese e-commerce market, but the company’s stock continues to perform very poorly. One of the reasons for this is related to the unpredictable political risks in times of President Xi’s goal to achieve social and political stability.

Chinese President Xi showed the world that he would sacrifice economic profit for social stability when he praised the zero-covid policy in cases where entire parts of the city or an entire region were shut down with even a few Covid cases.

Most importantly, President Xi likely sees the big tech conglomerates as a core risk to his political stability, which is likely to keep investor sentiment at a low ebb until some major changes take place.

Alibaba has already faced research problems that put Alibaba’s collective companies in the crosshairs of significant regulatory risk, and in the name of stability, the Chinese government can easily draw a future without Alibaba.

Nevertheless, investors willing to accept these risks can make a nice profit by investing in Alibaba shares at the current price. The ipo reddit stocks is found online. With a market cap of $188 billion, Alibaba is cheap. Compared to Amazon.com, Inc (NASDAQ:AMZN), Alibaba is cheaper on a price-to-sale basis.

According to the price-to-sales ratio (market cap / earnings), Alibaba shares trade at 1.40, which is almost two times lower than Amazon’s price-to-sales ratio, which trades at a P/S of 2.49 . It’s also important to mention that Shopify Inc (NYSE: SHOP) has more than seven sales this year and more than ninety times last fiscal year’s EBITDA. Alibaba is trading at less than nine times last year’s EBITDA, less than 10 times future earnings per share. Even in a highly uncertain macro and regulatory environment, this stock could be a good choice.

Bears control Alibaba

Alibaba shares are down more than 45% after hitting a 2022 high of $138.70 on Jan. 12. The risk of further decline remains.

The current support level is at $70, while $90 represents the first level of resistance. If the price drops below $70 again, it would be a “sell” signal and the way to $65 or even lower is open. On the other hand, if the price climbs above USD 90, the next target could be resistance which is at USD 100.

Conclusion

The Chinese economy is facing many headwinds such as continued Covid controls, a deteriorating relationship with the US, reduced exports, a housing bubble, which is keeping investors away from Chinese companies. Alibaba is trading at less than nine times last year’s EBITDA, less than 10 times future earnings per share, and even in a highly uncertain macro and regulatory environment, this stock could be a good choice.