Alibaba stock price has crashed. Is it too undervalued to ignore?

on Mar 11, 2022
  • The Alibaba stock price has crashed sharply in the past few months.
  • There are fears that the company will be delisted from the US.
  • The stock is significantly undervalued vs Amazon.

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The Alibaba (NYSE: BABA) stock price tragic collapse accelerated on Thursday this week. The shares dropped to a low of $92.90, which was the lowest level since January 2017. It has crashed by over 70% from its highest point in 2020 while its total market cap has crashed to about $262 billion.

Is Alibaba undervalued?

Alibaba has been in a strong sell-off as investors worry about delisting fears in the US. On Thursday, the Securities and Exchange Commission (SEC) published a list of five Chinese stocks that could be forced out of American exchanges.

While Alibaba was not in the list, the shares dropped because of fears of what will come next. Still, from a fundamental perspective, BABA has become one of the most undervalued companies in Wall Street.

First, the company is still growing despite the significant challenges it is facing in the US and in China. For example, its annual revenue in the past 12 months rose to over $131 billion from the previous $109 billion. There is a likelihood that this trend will continue in the coming years.

Alibaba is also a highly profitable company. In 2020, its net income was over $21 billion. It reduced sharply to about $9 billion. This decline is partly because the company was forced to pay a large fine in 2021 by Chinese regulators. Also, the drop in profitability is because of the rising regulatory scrutiny on Chinese tech firms.

Second, a comparison between Alibaba and Amazon (NASDAQ: AMZN) shows a big gap. For one, Amazon has a market cap of over $1.5 trillion while Alibaba is valued at $262 billion. Yet, to a large extent, Alibaba has better profit metrics than Amazon. For example, it has an EBITDA margin of 16% while Amazon has 12.

Third, from a valuation standpoint, Alibaba is trading at a trailing PE multiple of 26 and a forward figure of 12. Therefore, this makes it significantly more affordable than the broader market.

Alibaba stock price forecast

alibaba stock price

The weekly chart shows that the BABA stock price has been in a deep downward trend in the past few months. The shares have fallen by over 70% from all-time high. They have managed to move below the 25-week and 50-week moving averages.

The stock has also crashed below the 78.6% Fibonacci retracement level while the Relative Strength Index (RSI) has moved to the oversold level. Therefore, the stock will likely keep falling as bears target the next key support at $80. In the long-term, the shares will likely rebound as delisting fears ease.