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Alibaba stock has lost more than 70% of its value since late 2020.
Greg Baker/AFP via Getty Images
Alibaba
stock rose Tuesday in the face of a downgrade from Bernstein analysts, who see a potential “value trap” risk for shares in the Chinese tech giant.
Many on Wall Street have called for
Alibaba
Group Holding (ticker: BABA) to rally—in large part because the shares have looked so cheap. The stock has lost more than 70% of its value since late 2020, hammered by regulatory crackdowns, rising competition from the likes of
JD.com
(JD) and
Pinduoduo
(PDD), and a Covid-induced slowdown in the world’s second-largest economy. But the team at Bernstein, at least, might be losing faith.
Analysts led by Robin Zhu downgraded Alibaba stock to Market Perform from Outperform on Monday, cutting their target price to $98 from $130. Despite that, Alibaba’s American depositary shares gained almost 2% in early Tuesday trading to $86.98.
Bernstein does expect sales growth—measured by gross merchandise value—to show improvement in the June quarter. But feedback from merchants on the e-commerce platform has continued to point to “anemic marketing spend,” the analysts wrote.
Zhu’s team said that quarterly comparisons get harder from this point on, which contributes to value trap risk. A value trap refers to a stock that looks cheap because of its valuation, but risks stagnating or falling further.
“We upgraded Alibaba a year ago on the basis that the stock had discounted perpetual low growth, and that reopening would help support growth via better category mix,” Zhu’s team wrote. “Alibaba’s shares have traded in a range since…while they remain cheaply valued, perpetual low growth no longer feels like an aggressive bear case.”
And competition in the sector remains a concern. “We’re unconvinced that low multiples and modest [earnings per share] accretion can drive durable share price performance if the competitive problem in core e-commerce remains unresolved,” the analysts wrote.
Nevertheless, Wall Street more broadly remains bullish on Alibaba, which announced earlier this year a plan to split itself up—including breaking out its high-growth cloud computing division—in a bid to deliver value to shareholders. Alibaba stock continues to garner an average rating of Buy among more than 50 analysts surveyed by FactSet, with an average target price implying upside of nearly 60% from current levels.
Write to Jack Denton at [email protected]
Source: https://www.barrons.com/articles/alibaba-stock-price-hong-kong-china-9d96c0bc?siteid=yhoof2&yptr=yahoo