Alibaba (BABA) stock has been on a rough ride in recent months. Since hitting a peak of nearly $320 per share late last year, shares have seen a drop of nearly 50% from these highs. For such an incredible growth stock, this drop is one that has many investors scratching their heads.
Of course, there are reasons that Alibaba and its growth peers have struggled of late.
Late last year, it was announced that the much-anticipated IPO of its Ant Financial subsidiary was delayed. Ant Financial was also forced to restructure, causing significant value destruction for investors. These concerns arrived on top of delisting rhetoric, which has heated up in recent months.
Additionally, in April, Alibaba was slapped with a $2.8 billion fine as a result of a Chinese government crackdown on monopolistic behaviors at Alibaba. This fine caused the company to post its first-ever loss as a publicly-traded company. Accordingly, investors saw selling pressure in BABA stock pick up in recent months. (See Alibaba stock chart on TipRanks)
Indeed, Alibaba seems to be under pressure from the Chinese government. Those bearish on Alibaba have made good money short-selling this company and highlighting these concerns of late.
However, there’s a reason why many investors are buying this dip. Let’s dive into what Alibaba does, and why this current price may be a great entry point for long-term growth investors right now.
Alibaba’s Business Model Enticing for Growth Investors
E-commerce is where many investors want to stay invested over the long-haul. That's for good reason.
For Chinese mega-cap e-commerce player Alibaba, the comparison to the business models of a range of American companies are valid. Indeed, Alibaba has most notably been referred to as the “Amazon (AMZN) of China,” though the company’s core businesses span a range of other consumer spending and technology sectors.
E-commerce is one sector with some very powerful long-term tailwinds that growth investors have enjoyed riding in recent years. Those hoping Alibaba can eventually match (or even surpass) Amazon’s dominant performance have reason to like this stock right now. After all, Alibaba trades at a fraction of the valuation of its American counterpart presently.
Accordingly, perhaps a more astute comparison would be to call Alibaba the Amazon, PayPal (PYPL), and Ebay (EBAY) of China. Indeed, the company’s e-commerce presence is large. However, to understand the totality of the company’s overall business, it’s important to take a look at everything the company does.
For those who haven’t used Alibaba or its Alipay service via its stake in Ant Financial, it’s difficult to wrap one’s head around how big Alibaba really is. In the Chinese market, it’s an absolute behemoth. With Alibaba capturing so much of the value it creates with every transaction, it’s easy to understand why long-term investors focus on this mega-cap tech name.
What Analysts Are Saying About BABA Stock
According to TipRanks’ analyst rating consensus, BABA stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 25 Buy recommendations and 1 Hold recommendation.
As for price targets, the average analyst Alibaba price target is $301.60. Analyst price targets range from a low of $270.00 per share to a high of $350.00 per share.
Alibaba’s recent woes are certainly noteworthy, and have caused tremendous concern among investors of late. However, those willing to fight some near-term volatility may be well-rewarded by the long-term upside BABA stock provides.
Earlier this year, it was reported that value investor Charlie Munger had recently acquired a relatively large stake in Alibaba through the Daily Journal Corp (DJCO). This sizable investment accounted for roughly 19% of Munger’s overall portfolio. As serious investors know, Mr. Munger only buys companies he thinks hold tremendous value and long-term growth prospects. He also doesn’t enter and exit stocks frequently. Rather, he’s a long-term buy-and-hold investor.
Indeed, this purchase is a big vote of confidence for those holding Alibaba right now, especially considering Munger’s cost base is likely substantially higher than current prices. That’s assuming he hasn’t averaged down this quarter.
Accordingly, it appears some of the greatest investors of all time are holding true to their view that Alibaba holds tremendous value at these levels. While many of the concerns the market has with Alibaba are certainly pertinent in the short-term, there’s also reason to believe these simply represent noise in the markets.
Long-term investors could do well if they drown out the noise and buy this stock when it’s unfavorable. After all, that’s what Charlie Munger is doing.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.