Alibaba Group Holding Ltd: Be Greedy When Others Are Fearful?

Time to Consider BABA Stock?

Something looks very peculiar.

The overall market is doing alright. Earnings season is progressing just fine. And the Fed hasn’t made any unexpected remarks in a while. Yet, we find a certain group of stocks—including a few big names—experiencing quite a tumble.

To be specific, I’m talking about Chinese tech stocks.

There are plenty of reasons to be concerned about how the regulatory environment in China is going to change, and how those changes will affect U.S.-listed Chinese stocks.

Here’s the thing: It’s easy to follow the trend and turn bearish. But if you look beyond the headlines and into what some of these companies are actually doing, the current sell-off may represent an opportunity.

In particular, I’m looking at Alibaba Group Holding Ltd (NYSE:BABA), a multinational technology company known for its presence in China’s e-commerce industry. In fact, it’s currently the most dominant e-commerce platform in the country, with more than 900 million active annual customers. (Source: “June Quarter 2021 Results,” Alibaba Group Holding Ltd, last accessed August 10, 2021.)

E-commerce was one of the few industries that actually got a boost from the COVID-19 pandemic. And unsurprisingly, e-commerce stocks were the first to shoot up after the pandemic-induced sell-off in early 2020.

In the case of BABA stock, it went from around $180.00 in March 2020 to nearly $320.00 in October 2020. Not bad considering that Alibaba was already commanding hundreds of billions of dollars of market cap to begin with.

But, as we know now, BABA stock’s uptrend came to a rather abrupt stop after peaking last October. It then went on a downward journey. And that journey has persisted for quite a while.

Take a look at the chart below. Today, Alibaba stock trades at $199.28 apiece. That’s around 25% lower compared to where it was 12 months ago.

Alibaba Group Holding Ltd (NYSE:BABA) Stock Chart

Chart courtesy of StockCharts.com

So, how is the company’s business doing?

Well, in the second quarter of 2021, Alibaba generated RMB205,740 million (US$31,865 million) of total revenue, representing a 34% increase year-over-year. That’s a pretty solid growth rate, even by e-commerce industry standards. (Source: “Alibaba Group Announces June Quarter 2021 Results,” Alibaba Group Holding Ltd, August 3, 2021.)

And remember how I mentioned that the company has over 900 million annual active customers in China?

Well, the precise figure for this metric is 912 million for the 12 months ended June 30, 2021. And if you include the 265 million customers served by Alibaba’s platforms overseas, you’d see that the annual active customers of Alibaba’s ecosystem across the world reached a whopping 1.2 billion.

For the bottom line, the company reported adjusted diluted earnings of RMB16.60 (US$2.57) per American Depositary Share (ADS), marking a 12% increase from the year-ago period.

In other words, Alibaba’s business has improved from a year ago. But its stock is trading quite a bit lower compared to the year-ago period.

Analyst Take

Legendary investor Warren Buffett once said, “Be fearful when others are greedy and greedy when others are fearful.”

We all want to buy the dip, but it’s a lot easier said than done. When a stock is tumbling, it may seem that there’s no bottom in sight.

However, when it comes to solid companies, being greedy when others are fearful could lead to big returns. Just ask anybody who bought during the market crash in March 2020.

Ultimately, I’m not saying that Alibaba is a slam dunk. The company has many segments, and some of them could be impacted by new regulations. But because Alibaba remains a fast-growing, and by far the most dominant e-commerce platform in China, the tumble in its share price could represent an opportunity.