When it comes to stocks, not all are created equal. While some companies hold immense potential, others may underperform or even face significant losses. This rings especially true for Alibaba (NYSE: BABA), dubbed as “the Amazon of China.” Despite initial success, the company has seen nearly all its gains since 2016 vanish, making it a risky proposition for investors.
The Perils of Owning Alibaba Stock
While it’s natural for stocks like Amazon to encounter challenges and witness a decline in value, the specific concerns surrounding Alibaba set it apart. Its status as an international stock via American depositary receipts (ADR) isn’t inherently alarming. However, the overriding issue lies in the heightened political risk associated with the company due to escalating U.S.-China tensions and capricious policy changes within China.
Coping with Growth and Market Performance
Despite its sustained growth in revenue and net income, Alibaba’s stock has failed to reflect its business expansion. Notably, the stock languishes just slightly above its IPO price from 2014, with a price-to-sales (P/S) ratio tumbling from an early high to a mere 1.4. The price-earnings (P/E) ratio has similarly plummeted to 9.9 times earnings. This profound price devaluation can be readily attributed to the pervasive political turmoil engulfing the company.
Avoid Alibaba Stock: A Wiser Move
Ultimately, the excessive political risk renders Alibaba stock an imprudent choice for most investors. Although ADRs are generally safe, the entwining of U.S. corporate listings with foreign state interests poses significant hazards, as underscored by the peril of delisting by the SEC. Given these circumstances, opting for a U.S.-based stock like Amazon, despite the higher cost, potentially shields investors from unwarranted political risks.
Is It Worth Investing in Alibaba Group?
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