Although uncertainties surrounding Alibaba (NASDAQ:BABA) are alleviating, investors are not convinced the stock is a buy yet. Politically, the Chinese Communist Party is clamping down on the tight integration between Alipay and Alibaba. After canceling the Alipay initial public offering, the fair value of BABA stock is on the decline.
What will it take for Alibaba stock to bottom and to move steadily higher from here?
In April, Alibaba paid a record $2.8 billion fine for behaving like a monopoly. Markets speculated briefly that the fine would end the uncertainties around its future. But the stock met its 200-day moving average of around $240 and backed down from there. By mid-May, the stock visited close to the $200 level.
Value investors cannot rely on favorably low price-to-earnings multiples to buy the stock. So long as the government watches Alibaba’s every move, the stock is unlikely to break out and sustain an uptrend. On June 3, the China Banking and Insurance Regulatory Commission approved Ant Group’s consumer finance company set up. Ant will hold a 50% stake. Six other shareholders will hold the remainder.
Alibaba holds a non-controlling position in Ant, so any positive development for the unit should help BABA stock.
Watch Alibaba stock for now. The stock will underperform for a while longer.
