Positive Developments Boost the Bull Case, Says Top Analyst

The Chinese government has not made life easy for ecommerce giant Alibaba (BABA). Regulatory crackdowns and an almost hostile approach have been de rigueur over the past couple of years.

But a slowing Chinese economy has caused a bit of a rethink at the higher echelons of Chinese decision-making. The government is preparing a course of action that will boost its ailing economy.

According to a report by the Xinhua news agency, the government will “actively release policies favorable to markets” and in advance of any pending regulation which could potentially have a substantial influence on capital markets will run it by financial management departments. To boost the economy in CQ1, the government will take “forceful measures.”

On top of the regulatory woes, the slowing economy has impacted Alibaba’s business, and as a result of this potent combination and other factors, the stock has taken a battering. As such, the latest development is a welcome one.

“We view this as very encouraging commentary from a regime which over the last year has increased scrutiny and enacted unfavorable policies towards some of its leading domestic tech companies,” said Truist analyst Youssef Squali.

Further boosting sentiment, a number of news publications have reported that in an attempt to appease US regulators and prevent Chinese companies like Alibaba from being delisted from U.S. exchanges, China’s securities watchdog is planning to make compromises on the disclosure of Chinese audit information. This is also a promising development.

“Given its scale and importance to both Chinese consumers and US/Hong-Kong based-investors, BABA’s risk exposure is material, and therefore a compromise that satisfies both governments would remove one of the biggest overhangs for BABA shares in our view,” the 5-star analyst noted.

That said, it should also be noted that investors’ enthusiasm for equities worldwide has soured somewhat, due to a mix of new Covid outbreaks in China, inflationary pressures in the US and Europe, ongoing supply-chain problems and Russia’s invasion of Ukraine.

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As such, adding a note of caution, Squali says that it “remains to be seen what actual measures the Chinese government decides to take to boost the economy in general and consumer spending in particular, and in what time frame.”

Nevertheless, shares “look attractive” at the current valuation, according to Squali. The analyst gives BABA a Buy rating along with a $180 price target. The figure suggests shares have room for ~74% growth over the coming year. (To watch Squali’s track record, click here)

The Street’s average price target is only slightly lower; at $174.38, shares are expected to appreciate 68% in the months ahead. Most analysts are backing BABA at this point; based on 19 Buys vs. 1 Sell, the analyst consensus rates this stock a Strong Buy. (See Alibaba stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.