Investors in Chinese stocks are bound to be feeling disappointed – while U.S. stock markets are scaling new highs, Chinese stocks have tumbled to their lowest levels in five years. The performance has been particularly bleak for some companies; last month, Alibaba Group Holding (BABA) shares briefly fell below their IPO price.
For context, Alibaba went public in 2014 and priced the shares at $68. The Chinese e-commerce giant raised $21.8 billion from the offering, which was the biggest IPO until then. However, after almost a decade, BABA shares currently trade back around their IPO levels, even as U.S. tech peers like Amazon (AMZN) have risen exponentially over the same time period.
The Plight of BABA Stock
Nothing much has gone right for BABA stock over the last few months, but the recent fall in the stock is largely the result of broad-based selling in Chinese shares, rather than any company-specific issue. Sentiments toward Chinese stocks are quite negative, as most economic indicators suggest further softening of the world’s second-largest economy.
Chinese stocks have undergone a valuation derating due to President Xi Jinping’s economic policies and escalating tensions between China and the Western world. The possibility of Donald Trump returning to the White House is not helping the cause of Chinese companies, as it was under his administration that the U.S.-China trade/tech war started.
Understanding the 2025 Forecast
The outlook for Chinese stocks as an asset class is looking quite hazy. Despite the increased risks, I would still bet on Alibaba stock, given the company’s low valuations. With its single-digit price-to-earnings multiples, high free cash flows, and reasonably good growth outlook, Alibaba stock looks worth the risk.
I believe that Chinese stocks are now at the capitulation stage, and there is widespread fear. While the risks related to Chinese stocks are real, the world’s second-largest economy is not collapsing, but is rather resetting to a lower growth rate. However, I am in the camp that believes that Chinese stocks, including Alibaba, will eventually recover and go back up.
Analysts Projections for BABA Stock
Jefferies has listed Alibaba among its top global picks, and its target price for BABA of $133 implies an upside of more than 80% over the next 12 months. BABA has a consensus rating of “Strong Buy,” and its mean target price of $116.19 is 60.6% higher than current price levels. For long-term investors who can be patient amid the current volatility, Alibaba looks like a good stock to buy. While being conscious of the increased risks associated with Chinese companies, I would follow Warren Buffett’s old quote and be “greedy when others are fearful.” I find the risk-reward quite compelling at these prices.
