Alibaba stock price has slumped. Time to buy the dip?

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Dec 2, 2021
  • Alibaba stock price has crashed hard in the past few months.
  • Regulatory and growth concerns have intensified.
  • We explain why the stock is cheap and what to expect.

Alibaba (NYSE: BABA) stock price has crashed in the past few months. The stock is trading at $123, which is the lowest level it has been since June 2017. It has crashed by more than 61% from its all-time high. This brings its total market capitalization to more than $345 billion.

Why has BABA crashed?

There are several reasons why the Alibaba stock price has crashed in the past few months. First, Chinese regulators have tightened the noose against the company. For example, in April, they ordered the firm to pay billions of dollars for its uncompetitive behaviour. 

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This announcement came a few months after the regulators halted the initial public offering of Ant Financial. Alibaba owns a substantial share of Ant. Due to changes the firm has implemented, its valuation has crashed from more than $300 billion to less than $29 billion. 

The BABA stock has also crashed because of the recent warning by the company about growth. When announcing its most recent results, the firm warned that its business was slowing substantially. Most importantly, the shares have dropped because of delisting risks as US tensions remain. 

Still, a closer look at Alibaba share price shows that it is significantly undervalued. A good way to look at this is to compare its numbers with those of Amazon, a company valued at more than $1.7 trillion. The reality is that Alibaba has faster growth and is more profitable than Amazon.

For example, In the most recent quarter, Amazon had a net profit of more than $26 billion while Alibaba had a profit of about $19 billion. This gap was mostly because Alibaba spent more money in the quarter to deal with regulators.

Turning to the balance sheet, Alibaba has more than $$71 billion in cash and a total debt of more than $28 billion. Amazon has more than $78 billion in cash and more than $138 billion in cash. In terms of valuation, Alibaba has a PE ratio of about 17 while Amazon has a PE of about 67. This means that Alibaba is a better buy than Amazon at these prices.

Alibaba stock price forecast

Alibaba stock

The weekly chart shows that the BABA stock price has been in a major bearish trend in the past few months. The stock has managed to move below the 50-week and 25-week moving averages. It has also dropped below the 61.8% Fibonacci retracement level. 

Therefore, I suspect that the stock will continue struggling in the next few weeks. In the long-term, however, I suspect that many investors will start buying the coins dip.

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