For a company with a market capitalization of around a quarter of a trillion dollars, Ali Baba (BABA) a stock’s one-year performance resembles that of a small cap. Over the past 12 months, stocks have lost 60% of their value as a confluence of bearish developments have continued to drive the stock price lower.
According to Deutsche Bank analyst Leo Chiang, given the latest domestic Omicron outbreak and international geopolitical uncertainties, investors should expect “more near-term pressures for BABA across its various business lines. “. The analyst says the “increasing lockdown measures” and international developments have hit the company hard on multiple fronts.
“1) e-commerce, due to logistical disruptions; 2) other retail and local services, on muted offline activities; and 3) Cloud, due to onsite project delays,” Chiang explained. “Internationally, recent geopolitical tensions have further weighed on the growth trajectory amid the continued impact of the EU’s removal of the VAT exemption and currency depreciation in some markets (e.g. example, Turkey).”
As for the June quarter, assuming a gradual recovery that started in May, Chiang predicts that it will likely be the “toughest quarter for domestic businesses (e.g. e-commerce, other retail, local services, cloud)”. However, given the lingering geopolitical uncertainties, in the coming quarters international trade “could continue to fluctuate”. On the margin front, to counter China Commerce’s weak performance, Chiang believes the company will resort to “cautious” investment in new initiatives, Taobao Deal and Taocaiicai.
That said, there are a few positives to note. During the lockdown period, FMCGs (Fast Moving Consumer Goods) and local on-demand services such as Hema and ele.me increased new users and “enhanced user engagement”, especially in major hubs like Shanghai and Shenzhen. Going forward, Chiang sees “post-pandemic structural opportunities” for these companies.
Overall, Chiang concludes on a note of hope: “Despite the short-term challenges, we remain confident in the vast potential and strong fundamentals of its new businesses, such as cloud and international trade, to support the long-term growth.”
To this end, the Deutsche Bank analyst rates BABA as a buy with a price target of $172. This target brings the upside potential to 84%. (To see Chiang’s track record, Click here)
Overall, Wall Street is taking a bullish stance on Alibaba shares. 16 buys and 1 sell issued in the previous three months make the stock a strong buy. Meanwhile, the average price target of $171.36 suggests an upside of around 83% from current levels. (See Alibaba’s stock predictions 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.