When Alibaba (NYSE:BABA) headed to fresh, multi-year lows in the last week, it befuddled value investors. After already paying billions in fines to the Chinese government, markets value BABA stock at 14 times forward price-to-earnings multiples.
After losing half its value from its 52-week high, when will the Alibaba stock crash end?
Alibaba will dominate the e-commerce market in China for years to come. Customer growth continues to improve on the desktop and mobile channels. Its cloud services business is growing. China’s politics is a major headwind. The Party introduced a gradual and then sudden shift in policy to regulate e-commerce, online non-profit education, and ride-sharing.
Didi’s (NYSE"DIDI) IPO ignored Chinese regulator concerns on customer privacy. The clampdown on the online education market is spreading to other sectors. Investors are selling BABA stock and other big names to avoid further losses.
Knowing when Alibaba’s stock crash ends is impossible. Investors must decide if they should wait for a rebound. That will not happen until China signals that it is done imposing new restrictions and regulations on the free market. Expect sudden rallies in BABA stock that may prove temporary.
Investors should consider reducing their position on Alibaba on any short-lived rally.
