To The Moon

Alibaba($Alibaba(BABA)$ ), the largest e-commerce and cloud infrastructure company in China, went public on Sept. 19, 2014 at $68 per share. The stock opened at $92.70, ended the first trading day at $93.89, then rallied over the following six years to an all-time high of $317.14 on Oct. 27, 2020.

But as of this writing, Alibaba's stock has dropped to the low $70s, and it could retest its IPO price. Let's review the bear and bull cases again to see if Alibaba is becoming a value trap or a value stock.

Why I am bullish on $Alibaba(BABA)$?

The company's stock is too cheap to be ignored.

Alibaba's growth might be decelerating, but it still controlled 47.1% of China's e-commerce market last year, according to eMarketer.JD.com($JD.com(JD)$ )ranked a distant second with a 16.9% share, followed by a 13.2% share forPinduoduo($Pinduoduo Inc.(PDD)$ ). Meanwhile, GlobalData expects China's e-commerce sector to continue expanding at a compound annual growth rate (CAGR) of 11.6% between 2021 and 2025.

Therefore, Alibaba's near-term growth may be hampered by new regulations and macroeconomic challenges, but its Chinese commerce business -- which served 979 million annual active consumers in its latest quarter -- could still grow at a stable clip over the long term. The growth of its overseas marketplaces, which include Lazada in Southeast Asia and Trendyol in Turkey, could also gradually reduce its dependence on China.

As for the delisting threats, China's Securities Regulatory Commission (CSRC) recently expressed its confidence in reaching an agreement with the SEC to resolve the auditing dispute before any firms are actually delisted. The CSRC also previously said that Chinese companies can continue listing their VIEs overseas as long as they properly registered their plans.

If we look past those headwinds, then we're left with a stock that trades at just 14 times next year's earnings and 1.3 times next year's sales. By comparison, Alibaba was valued at about 14 times its fiscal 2025 sales when it listed its IPO shares at $68 for a valuation of $168 billion in Sept. 2014.

Conclusion

I think the market has become too bearish on Alibaba, but I don't expect that pressure to ease as long as it remains a top target for regulators in the U.S. and China. The stock is undeniably cheap relative to its growth potential, but it will likely remain a value trap until it resolves those messy issues.

Source: Nasdaq