Article Thesis
Alibaba (NYSE:BABA) is a high-growth tech mega-cap that trades at a quite inexpensive valuation, considering its growth track record and growth outlook. Shares have lost about 30% from the top in late 2020, based on worries about Ant Group and due to pressure on the tech industry as a whole in recent weeks. Some tech stocks still look quite overvalued, we believe, but that is not true for Alibaba - we see this as a long-term winner that has been punished too much over the last couple of months.
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Alibaba Has Dropped Considerably From The Top As Shares Are Sold Indiscriminately
Shares of Alibaba did rise quite a lot from the bottom of the spring sell-off through fall 2020, rising from around $180 to as much as $320. This was based on a strong operating performance, coupled with an overall strong sentiment on tech stocks, which were deemed winners during the pandemic by the market. Since shares topped out around $320, however, they have fallen quite a lot, trading for just $227 at the time of writing. How can this 30%-selloff be explained? It looks like there are two main factors.
The first one is that Ant Group, in which Alibaba holds a stake, has botched its IPO in late 2020, due to pushback by Chinese regulators. This has resulted in significant pressure on Alibaba's share price, even though the actual impact of the non-IPO may not be all that large. Regulators have increased their demands on Ant Group when it comes to reporting standards, etc., but they did not move to disband or otherwise seriously hurt the company, which means that the underlying value of Alibaba's stake in Ant Group has surely not dropped to zero.
The agreement between regulators and Ant Group foresees Ant
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