Is February a good month for buying Alibaba shares?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Jan 19, 2021
  • Mizuho assigned a "buy" rating on Alibaba and raised its price target to $300 from $270
  • Alibaba will increase a share repurchase program to $10B from $6B
  • My opinion is that Alibaba shares are expensive

Alibaba shares extended their correction from the record highs above $319, registered in the last week of October. Despite this, there is no reason to panic, and as long the price of Alibaba is above $200, this stock remains in a bull market.

Fundamental analysis: Alibaba is expanding its business on electric vehicles

Alibaba shares advanced last year above $300 resistance, but the stock price has weakened from record levels as Chinese regulators announced an investigation against Alibaba over alleged monopolistic practices. With a 62% share in consumer retail commerce, Alibaba continues to dominate the Chinese e-commerce market, but there is still a significant risk of investing in Alibaba.

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Even with the COVID-19 pandemic, the business of Alibaba is going very well, and the company announced that it is launching an electric sedan with wireless charging. The company will produce electric vehicles under a new brand formed together with state-owned SAIC Motor, and according to rumors, the new EV will be able to park itself alone.

Alibaba reported Q2 results in November; total revenue has increased by 30.3% Y/Y while Q2 GAAP EPS was $1.54 (beats by $0.06). Total profit has increased above expectations, and strategic investments started to improve operational efficiencies and the effect of scale.

“We delivered another solid quarter, with revenue growth of 30% year-over-year and adjusted EBITDA up 28% year-over-year,” says CFO Maggie Wu.

Alibaba reported this January that it has plans to raise at least $5B through the sale of bonds but depending on investor interest, proceeds could reach $8B. Positive information is that Mizuho assigned a “buy” rating on Alibaba and raised its price target to $300 from $270.

“Our checks indicate that the December quarter was modestly ahead of street expectations due to successful November promotions and increased adoption of its logistics business. We expect management to increase investments on the new business model and expand its retail infrastructure in lower-tier markets to compete for market share,” said analyst James Lee from Mizuho.

Alibaba announced in December that it would increase a share repurchase program to $10B from $6B, which will be effective through the end of 2022. My opinion is that shares of this company remain overvalued, and there are some apparent risks when it comes to buying Alibaba shares.

Alibaba still faces regulator investigation issues, and the company’s shares could decline even more in the upcoming period.

Technical analysis: Alibaba shares remain in a bull market

According to technical analysis, Alibaba shares could reach the $280 resistance this Febraury, but this stock is expensive with a $658B market capitalization.

Data source: tradingview.com

The current support levels are $220 and $200; $ 260 and $280 represent the resistance levels. If the price jumps above $260 resistance, the next target could be around $270, but if the price falls below $200, it would be a firm “sell” signal and maybe a sign of the trend reversal.

Summary

Alibaba shares extended their correction from the record highs above $319 as Chinese regulators announced an investigation against Alibaba over alleged monopolistic practices. The company reported increasing a share repurchase program to $10B, and Mizuho raised its price target to $300 on Alibaba. According to technical analysis, Alibaba shares could reach the $280 resistance this February, but this stock remains expensive with a $658B market capitalization.

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