By Jack Denton
Alibaba stock rose on Friday amid its longest winning streak in a year, but investors shouldn't be too excited: shares in the Chinese tech giant are still near multiyear lows, with lots of reason for caution even as the bull case looks exciting.
Shares in Alibaba rose 2% in U.S. premarket trading on Friday, with the stock on track for its seventh consecutive day in the green. That would be the longest stretch of gains since January 2023, when the shares also rose for seven straight days.
Even though Alibaba is on the up and up, the stock price is still historically low: having closed just north of $75 on Thursday, the shares are on the lower end of their 52-week trading range between $66.63 and $102.50, with the $60s being a multiyear low zone.
Alibaba stock is down more than 75% from its late-2020 record high. Declines started in earnest with regulatory pressures on the Chinese tech sector, which battered Alibaba through much of 2021 and 2022, with Covid-19 lockdowns and a surprise economic slowdown in 2023 and 2024 only making matters worse.
The trouble for investors is that the bull case for Alibaba is so exciting: the company is among the world's largest e-commerce businesses with a strong footprint in the high-growth cloud computing and artificial intelligence space. By all metrics, the stock is a screaming value buy and technically extremely cheap -- but Alibaba shares h ave shown themselves to be more like a value trap than a Warren Buffett-style value play.
Wall Street remains optimistic. Alibaba stock is overwhelmingly rated at Buy among analysts surveyed by FactSet, with an average target price implying upside of almost 40%. But in order for Alibaba to make a real recovery, there needs to be a sustained rebound in the Chinese economy -- and that's far beyond the tech giant's control as China faces headwinds from waning consumption and a distressed property sector.
Many of the recent short-term rallies for Alibaba stock have come on whispers of Chinese government stimulus, with the stock often paring gains as reality sinks in or Beijing tempers expectations. Another example came this week amid signs the People's Bank of China (PBOC), the central bank, could engage in bond trades, which may be seen as a precursor to quantitative easing, which is accommodative and stimulating monetary policy.
However, "the PBOC has clarified that its plans to start trading government bonds are aimed at managing interest rate risk, not conducting QE," Zichun Huang, a China economist at research firm Capital Economics, wrote in a note.
"This reinforces our sense that large-scale monetary easing remains unlikely," Huang added, noting signs of waning off-budget fiscal activity. "This poses a threat to the current cyclical upturn in growth, " the economist said.
Investors intrigued by Alibaba's hot streak should take note.
Write to Jack Denton at jack.denton@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 26, 2024 09:38 ET (13:38 GMT)
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