After a steep selloff, Alibaba (BABA) was poised to open sharply higher Thursday. China-based stocks rallied across the board after Chinese internet giant Tencent Holdings (TCEHY) reported upbeat earnings. Alibaba stock looks like it’s on sale after pulling back more than 30% off its high, but is BABA stock a buy now?
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A 6% intraday gain for Alibaba stock on Feb. 23 faded to a loss of 0.65% despite better-than-expected fiscal Q3 results. Adjusted profit rose 5% to $2.79 a share, well above the $2.37 consensus. Revenue fell 6% to $35.9 billion, slightly ahead of the $35.76 billion consensus.
“We delivered a solid quarter despite softer demand, supply chain and logistics disruptions due to impact of changes in COVID-19 measures,” said CEO Daniel Zhang. “Looking ahead, we expect continued recovery in consumer sentiment and economic activity.”
Alibaba Stock News
Alibaba stock jumped 3% on Feb. 9 on news that the Alibaba Dharma Academy — a science- and technology-focused research institute — is working on ChatGPT-like dialogue robot. But Alibaba stock gave back early gains, weighed down by weakness in the broad market.
Sellers hit Alibaba stock hard on Jan. 30 on reports the company is moving its headquarters out of the country. At the time, Alibaba acknowledged that it’s building a new campus in Singapore. But BABA said the facility would house regional operations.
Buyers pushed Alibaba stock higher on Jan. 13 on news that China bought a small stake in an Alibaba unit based in Guangzhou. The news came two days after Barclays maintained an overweight weighting on Alibaba stock and lifted its price target to 141 from 114.
Alibaba stock extended its winning streak to five sessions on Jan. 9 on news that Alibaba co-founder Jack Ma ceded control of fintech Ant Group, which has been in the crosshairs of Chinese regulators. China’s central bank on Friday said it was done investigating Ant Group. This paves the way for Ant to apply to become a fully regulated financial holding company.
But regulatory fears for Chinese stocks like Alibaba have been abating. A top Chinese regulator recently said the country is close to wrapping up investigations into internet platform operators like Alibaba.
Sentiment was also also positive in Alibaba stock on Jan. 9 after Goldman Sachs put Alibaba on its conviction buy list.
Singles Day
Alibaba, along with JD.com (JD), didn’t release specific gross merchandise volume for its Nov. 11 Singles Day, the world’s biggest annual shopping event. Alibaba did say that volume was comparable to last year, when the company reported gross merchandise volume of $84.5 billion, up more than 8% from the year-ago period. But that was a sharp slowdown from 26% growth in 2020.
Sentiment was weak around Chinese stocks in October after the Biden administration announced new restrictions on China’s access to U.S. semiconductor technology, including restrictions on the exports of some types of chips used in supercomputing and artificial intelligence. It also imposed tighter rules on the sale of chip equipment to China.
Alibaba stock rallied sharply in late August on reports that Beijing and U.S. regulators were close to an audit-inspection deal.
In late July, the U.S. Securities and Exchange Commission added Alibaba to a list of Chinese firms at risk of being delisted for not opening their books to U.S. accounting regulators.
Alibaba stock jumped on June 17 but pared early gains after Reuters reported that China’s central bank accepted Ant Group’s application to set up a financial holding company.
In early November 2020, Chinese authorities suspended the $34.5 billion Ant Group IPO in Shanghai and Hong Kong. Ant Group is the fintech arm of Alibaba. The decision to suspend the IPO came after Shanghai exchange officials said the exchange would halt the listing due to the company’s inability to fulfill conditions amid changes in the regulatory environment.
Recent Earnings
As part of its Nov. 17 earnings report, which showed adjusted profit up 5% year over year to $1.82 a share but revenue down 6% to $29.1 billion, BABA said it’s increasing its share buyback program by $15 billion. That’s on top of an existing $25 billion program. As of Nov. 16, the company said it already repurchased $18 billion worth of stock under its existing program.
In early August, Alibaba reported fiscal first-quarter revenue of $30.7 billion, down nearly 4% from the year-ago quarter but slightly above the consensus of around $30 billion. Adjusted profit of $1.75 a share was also above the $1.58 consensus.
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Alibaba’s China commerce segment fell 1% to $21.19 billion. The company’s cloud segment did revenue of $1.59 billion, up 10% year over year.
Sellers Hit BABA Stock
Increased regulatory scrutiny has weighed on Alibaba and other Chinese stocks for the past couple of years. Besides a strict regulatory environment, Chinese stocks have also been dealing with a slowing economy.
In April 2020, China regulators fined Alibaba $2.8 billion after an antimonopoly probe. At the time, it looked like BABA stock was ready to break out of a downtrend. But the stock got turned away at its 50-day moving average. It tried to rally above the 50-day line again in late April but sellers knocked the stock lower again.
BABA stock crashed another 8% on Nov. 10 after Chinese regulators announced new draft antimonopoly rules for China online platforms like Alibaba and JD.com, among others.
Alibaba Stock Fundamental Analysis
In recent years, it’s hard to find a company with a more impressive track record of growth than Alibaba. The company has a five-year annualized earnings growth rate of 13%, although fundamentals have weakened considerably in recent quarters.
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Alibaba’s Composite Rating of 64 (on a scale of 1-99 with 99 being the best) has fallen with the stock under selling pressure in recent weeks.
Declining revenue over the past three quarters, along with annual return on equity of 16% give Alibaba a lukewarm SMR Rating (sales + margins + return on equity) of C from IBD Stock Checkup (on an A-to-E scale with A tops).
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Alibaba is expected to earn $7.72 a share in its current fiscal year 2023, down 7% compared to fiscal 2022. But growth is expected to pick up in 2024, up 11% to $8.59. Estimates have been rising.
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Alibaba Stock Technical Analysis
Alibaba’s relative strength line has started to trend lower during the stock’s latest pullback.
A stock’s relative strength line, found in daily and weekly charts at Investors.com, compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Alibaba’s Accumulation/Distribution Rating has fallen to B-, hurt by some higher-volume declines in recent days.
BABA Stock: Is It A Buy Now?
Overhead supply issues are still a concern for Alibaba with the stock well below all of its moving averages its late-January high of 121.30.
A decisive move above the 50-day line on Nov. 15 was enough to break BABA stock out of its downtrend and give a buy signal. But the stock started to look extended after soaring 19% during the week ended Dec. 2.
Alibaba stock broke out again during the week ended Jan. 6, the same day the Nasdaq composite and S&P 500 marked follow-through days. It rallied more than 16% from there, but sellers have been in control every since.
Alibaba stock is not a buy now with the stock below its 200-day moving average. Even if Alibaba moves back above its 200-day moving average (currently around 92.50), the 100 level looms large as a potential resistance level.
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