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Deep Dive on Alibaba’s Stock Price – Explaining the “Tank” and Forecasting Its Future

Alibaba's Stock Price is Recovering

Alibaba Group Holding Limited, or simply Alibaba, is China’s largest online commerce company. In fact, over 80 percent of China’s online community utilized Alibaba. In addition to both brick-and-mortar and e-commerce sites, Alibaba also has other notable interests. These include cloud computing, digital media and entertainment, and a variety of innovative industries.

Notably, Alibaba has seen tremendous growth. Since its initial $25 billion raised in capital during its U.S. IPO, Alibaba has seen double-digit growth in revenues. It has now surpassed Facebook with nearly $250 billion in revenues. However, despite this impressive growth, Alibaba’s stock price has plummeted. What do investors know (or think they know) that has accounted for this significant decline?

Alibaba’s Stock Price – Disturbing Trends of Late

Alibaba’s stock price currently is hovering around $140 a share, which is over 30 percent off its annual high. Not long ago, Alibaba was trading at over $200 a share. As a relatively young technology company, the apparent source of this presumed devaluation might be Alibaba’s revenues. However, Alibaba’s earnings before interest, taxes, depreciation, and amortization (EBITDA) was roughly $15 billion over the last year. Alibaba enjoyed double-digit growth over 30 percent last year, and its predicted revenue growth rate is 40 percent for 2020. This hardly explains the sudden devaluation of the company or a drop in Alibaba’s stock price.

Alibaba Facing (and Embracing) Continuous Change with Jack Ma Departure

Based on revenues, Alibaba’s stock price should be soaring. Thus, examining leadership is always a noteworthy pursuit in investigating an unexpected drop in stock price. Indeed, Jack Ma, Alibaba’s founder, and prior CEO, recently moved aside as the company’s leader. Daniel Zhang now leads the Chinese conglomerate.

This change in leadership might have triggered some concern among investors causing Alibaba’s stock price to decline. But in actuality, this is not likely the case. Not only has Zhang been well-recognized as a steady leader, but he actively promotes change, innovation, and creativity. Under his leadership, Alibaba will further expand its market presence over the coming years.

Factors Beyond Alibaba’s Control

According to analysts, the reason for the drop in Alibaba’s stock price lies outside the company. By all accounts, the key fundamentals of Alibaba are strong and suggest significant growth in the near term. However, the climate in which Alibaba now finds itself has led to much speculation and concern. Making the headlines almost daily, current trade disputes between the U.S. and China have caused many investors to think twice.  Over $200 billion in Chinese goods have seen tariffs raised, and another $267 billion in goods are expected.

Secondly, the Chinese economy’s robust double-digit growth has recently fallen to single digits. This deceleration in China’s economy has similarly caused some investors to be less bullish on Alibaba’s stock price. Thus, the decline in Alibaba’s stock price appears to be due to the external environment more than Alibaba’s internal operations.

Seeking Alpha’s Olev Kombaier says, “It is difficult for me to judge at what stage Alibaba’s fundamental valuation factors will outweigh the external negative factors, but that moment is clearly not far off.

Alibaba’s Stock Price – Accurate or Undervalued?

According to some analysts, Alibaba’s stock price is currently 40 percent undervalued. The reasons for this assessment are quite clear. First, market predictors all support continued double-digit growth for Alibaba over the next several years. Earnings and revenues are expected to exceed 28 percent through 2020. As revenues continue to expand, despite trade wars and macroeconomic factors, investor fears will subside. This will eventually trigger a rise in Alibaba’s stock price.

Secondly, China’s growing middle class is not to be underestimated. Even with U.S. tariffs looming, these expanding Chinese consumers will serve as powerful drivers for Alibaba’s offerings. Not only does Alibaba have strong leadership and excellent diversification, but it also has a strong built-in consumer base. For this same reason, the company’s revenues will continue to grow, and Alibaba’s stock price will eventually rise.

Understandably, macroeconomic and external factors deserve attention and study. But for Alibaba’s stock price value, it appears the market is significantly undervaluing this company’s worth over the long term.

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