Alibaba Group Holding Limited (NYSE:BABA) stock fell hard last week, dropping 13% in value on Thursday. The big drop happened after news broke that China would be looking into the company for antitrust issues. One of the concerns is that Alibaba merchants that sign up for the company's service aren't also allowed to sell their products on a rival platform. And given the size and popularity of the e-commerce giant, it carries big influence. This year, sales related to Alibaba's Singles Day event brought in $75 billion in revenue – a year-over-year increase of 26%.
The business is still doing well but for investors the concern is what measures China may take on Alibaba if it were to crack down on its monopolistic practices. It's difficult to predict what may or may not happen, and that's where the uncertainty is a big question mark right now. For contrarian investors, it may be appealing to buy the stock on the dip but this isn't exactly a dirt-cheap valuation; at $222, this is around a six-month low for the stock. During the market crash in March, Alibaba's stock fell far lower, below $170.
Its price-to-earnings multiple of 30 also isn't a whole lot cheaper than the around 26 times earnings it was trading at a year ago.
While Alibaba crashed hard on Thursday, it's not such an incredible deal that's worth taking on the risk facing the company and it wouldn't be surprising if the stock were to continue to fall lower. For now, investors are better off taking a wait-and-see approach before thinking about buying shares of Alibaba.
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