Actions of alibaba (SLIME 0.58% ) they rose as much as 5.5% today, before settling for a 0.8% gain at 1:56 pm ET. Still, that number looked excellent next to the broader US markets, which were down 2% at the time of writing.
However, for those who hoped it was something fundamental about Alibaba’s business boosting the stock, they may be disappointed.
Yesterday, the China Securities Regulatory Commission held a meeting with members of the country’s big banks, insurance companies and the country’s social security fund, and encouraged these big domestic investors to buy stocks. This comes as Chinese indices are down some $2.7 trillion in value and have actually returned to levels not seen since June 2020. It seems like a lot of investors paid attention to those orders today.
The Chinese government has not done itself any favors, of course. Regulators have launched an all-out assault on the country’s tech giants since late 2020, starting with Alibaba. And due to the country’s insistence on developing less effective homemade vaccines, China is experiencing a huge wave of COVID-19. Due to its strict zero COVID policies, the country is implementing strict lockdowns, which could affect production and growth.
Unless the COVID-19 situation improves and the regulatory assault on the nation’s tech giants officially ends, it will be difficult to put much action on today’s positive move in Alibaba and other Chinese stocks.
Although today was not a fundamentally driven rally, Alibaba shares certainly look cheap. It currently has a forward P/E based on next year’s earnings estimates of 10.5. That’s very, very cheap, especially for a large-cap tech giant in the growing fields of e-commerce and cloud computing.
On the other hand, there are still many risks involved in Alibaba. The first is on the geopolitical front. If China seeks a closer relationship with Russia, it could lead to further isolation of the country, which would not be good for the Chinese economy or Alibaba’s business.
The second concern is on the competitive front. I was concerned about the strength of Alibaba’s moat against other rivals. jd.com Y pinduoduo, especially since the government began implementing antitrust regulations last year. Alibaba showed very tepid growth in its core business last quarter, even as JD.com maintained above 20% growth.
So while Alibaba may be cheap enough to buy here, there are plenty of lower-risk stocks also selling in this market downturn. In this tough market, it may be better to look for high-quality names with strengthening moats that are selling, rather than those with growing competitive threats.
This article represents the opinion of the author, who may not agree with the “official” recommendation position of a premium Motley Fool advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.