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Alibaba Stock Is Headed for Its Biggest Drop of the Year

AIibaba stock has been on a tear to start off 2022.
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Alibaba stock has been on a tear to start the year, but its two-day winning streak looks like it’s about to end.

Shares of the Chinese tech giant have gained 16% to start 2022, a big change after losing nearly half its value in 2021. Alibaba stock has risen in five of the year’s eight trading days including a two-day winning streak as investors sold U.S. tech titans and looked for alternatives elsewhere.

Still, Alibaba stock look set to fall Thursday as China’s stock market fell due to concerns about its real-estate sector and the impact of further lockdowns on the world’s second-largest economy. Alibaba stock was off 3.2% at 10 a.m. in U.S. trading, which would be its largest decline since falling 3.4% on Dec. 31.

Still, it’s not hard to find investors eager to buy weakness in Alibaba stock. Sen. Tommy Tuberville of Alabama, for one, bought shares and options on the company last month, despite being criticized for such purchases last year.

On the surface, Alibaba does look cheap. The Bear Traps Report notes that Alibaba’s market cap of $346 billion is just one-eighth of Apple’s (AAPL) $2.86 trillion market value after being worth about one-half of Apple over a five-year period. Alibaba still has a long way to go if it’s going reclaim those levels.

China’s government will have a lot to say about that. And that’s one reason Keith Kerner, chief market strategist at Truist, claims that China’s internet stocks are still too expensive. “The trailing price-to-earnings ratio for this index remains high at 38x, and we expect further compression given the regulatory overhang and lessfocus on profitability,” he writes.

Whether Alibaba is worth buying ultimately comes down to whether you believe the country will let the company thrive or a weight that keeps its shares from flying.

Write to Ben Levisohn at ben.levisohn@barrons.com

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