Alibaba (NYSE:BABA) seemed like a solid investment for much of 2020. BABA stock bounced back quickly after the March 2020 stock market crash. Powered by China’s early recovery from the pandemic, by the end of last October, BABA closed at an all-time high.
When it closed at $317.14 October 27, 2020, Alibaba’s stock had posted a gain of 75% over 7 months. That was about the last bit of good news Alibaba investors have heard for months.
At this point, after a slide that seems to have no end, Alibaba shares are worth around $140, less than half of what they were a year ago.
Unlike other BABA stock retreats (like the second half of 2018) this one is not a slam-dunk buying opportunity. Yes, you can pick up Alibaba shares for a price not seen in nearly three years. However, today’s Alibaba — and in particular, the circumstances around Alibaba — are very different. As a result, the stock may have even further to fall.
BABA Stock Faces Too Many Challenges
The big problem for Alibaba is that it has so many problems. Some are inter-related, but the sheer number of challenges this company faces is daunting. Any one of them would be a handful, but just look at this list.
- The Chinese government has been subjecting big tech companies to intense scrutiny and cracking down on them. Among the issues being investigated are monopolistic practices (that already earned Alibaba a $2.8 billion fine) and data security.
- Alibaba’s billionaire CEO Jack Ma has been singled out by the Chinese government. Ma has disappeared from public view and the government suspended the IPO of Ma’s Ant Group.
- Chinese stocks have been hammered over the past several weeks on fears that China’s Evergrande will default on billions of dollars in debt. BABA stock has been one of the hardest hit.
- China is in the midst of a power crunch, with its coal-fired electrical plants shutting down and electricity being rationed. This has the potential to disrupt the Chinese economy, which could in turn hurt buying and selling on Alibaba. In addition, power rationing could hit high power-use sites like Alibaba data centers.
- Finally, it may never happen, but the risk remains that Chinese stocks like Alibaba could be de-listed from American exchanges in the next few years unless they comply with U.S. accounting practices.
The Bottom Line on Alibaba
I differ from many in the investment community when it comes to my take on Alibaba.
The investment analysts polled by the Wall Street Journal have BABA stock rated as a consensus “Buy.”
However, if consider the controversy that still surrounds Jack Ma, the ongoing crackdown on tech companies by the Chinese government, the still unravelling Evergrande fiasco, China’s power crisis and throw in the risk of eventual de-listing in the mix? No, thank you. That is a lot of risk.
Yes, there is plenty of potential there. Even to get back to where it was at the start of the year would be a 37% gain for BABA. And that’s still nowhere near what shares were worth at this point in 2020!
However, to stop the current slide and kick BABA stock into an extended recovery, a lot has to go right. At this point, I simply wouldn’t bet on that happening. If you already own shares in the company, I would wait it out in the hope of a recovery, but I wouldn’t be buying BABA shares right now.
Brad Moon did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.