Alibaba: The Bottom Is In

China-Based Internet Company Alibaba Debuts On New York Stock Exchange

Andrew Burton/Getty Images News

Several days ago, Alibaba Group (BABA) entered freefall mode, crashing to levels not seen in years. The company's forward P/E ratio dropped to a rock bottom 13, while its relative strength index ("RSI") cratered below 20 for the first time. Shares of the e-commerce juggernaut were never battered this badly. I wrote about the opportunity to pick up Alibaba and other top China tech shares at the lows several days ago. While Alibaba has rebounded by more than 10% since then, plenty of upside potential lies ahead for the patient investor.

BABA 1-Year Chart

BABA

Source: stockcharts.com

Alibaba hit levels not seen since 2019 and was down by more than 50% from its all-time high ("ATH") achieved less than one year ago. At the same time, Alibaba's valuation was debased to a rock bottom 13 times consensus forward EPS estimates. A 13 P/E ratio seems like a ludicrous valuation, provided that the company should maintain a robust double-digit revenue growth rate in future years. The $64,000 question is, with new regulations coming out of Beijing, is Alibaba truly uninvestable, or will the company's shares stabilize, rebound, and begin to move higher?

What Is The Problem With Alibaba?

The problem is not just with Alibaba, as this destruction in market cap and shareholder value is a China-wide phenomenon. Many top Chinese names have declined by similar margins as Alibaba in the last months.

Other Top China Tech

Baidu (BIDU) - Was down by 62% from ATH around 1-year ago

BIDU

Source: stockcharts.com - Baidu was down to an RSI of about 22, and a forward P/E ratio of around 12 before catching a strong bid. The stock is now 16% off its lows.

Tencent (OTCPK: TCEHY) - Was down by 44% from recent highs

TCEHY

Source: stockcharts.com - Tencent started to rebound ahead of others, now up by about 17% off the lows.

JD.com (JD) - Was down by 42% from its highs

JD

Source: stockcharts.com - JD made a double bottom and is now 21% off its bottom.

Pinduoduo (PDD) - Was down by 64% from its ATH

PDD

Source: stockcharts.com - PDD hit an RSI of around 15 during the previous low, then the stock made a higher low on the RSI during the bottom. Now PDD is up by a whopping 32% from the recent low.

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Disclosure: I/we have a beneficial long position in the shares of BABA BIDU TME KWEB NIO either through stock ownership, options, or other derivatives. 

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