Alibaba: Record Stock Buyback Plan Sends Shares Higher
Stock Analysis & Ideas

Alibaba: Record Stock Buyback Plan Sends Shares Higher

There’s some good news about Alibaba (BABA) stock recently emerging. Big new buyback plans are putting new life into Alibaba. So much so, in fact, that I’m upgrading my stance from bearish to neutral.

Alibaba is making a better and better case for itself almost daily. However, there are still serious macroeconomic risks that could puncture the company’s plans before they can really begin.

The last year for Alibaba stock has been a disaster, but signs of recovery are present. Alibaba has seen brief rallies in its overall downward progression. These seldom last more than a few weeks at a time. The latest rally, however, proved much sharper than normal. It is currently up over 12% in today’s trading alone.

The recent gains seen at Alibaba have a fairly clear reason behind them. The company announced that it will increase its share buyback plan to nearly double its previous levels. The new move hikes the fund from $15 billion to $25 billion. The repurchase plan will run until March 2024. So far, the company has bought back close to $9.2 billion in shares under the earlier plan.

Wall Street’s Take

Turning to Wall Street, Alibaba has a Strong Buy consensus rating. That’s based on 17 Buys and one Sell assigned in the past three months. The average Alibaba price target of $169.76 implies 46.8% upside potential.

Analyst price targets range from a low of $65 per share to a high of $235 per share.

Hedge Funds Uncertain, Dividend No Help

Certainly, Alibaba is making some improvements in its share price. However, there’s still plenty of skepticism going on around this stock. Based on word from the TipRanks 13-F Tracker, hedge fund involvement has been declining for BABA since July of 2021.

There was a clear resurgence in hedge fund interest between January and July of 2021. Yet, that resurgence came after a protracted drop. July of 2021 saw the drop continue, though from elevated levels.

Insider trading levels, meanwhile, are kept close to the vest. There’s no information as yet about insider movement.

Moreover, Alibaba’s dividend history offers no help either. The company has no functioning dividend history. It also has no plans, as yet, to issue a dividend either. This takes it off the table for income investors. Only capital appreciation stands as a potential path to gain.

An Improving Picture, but Not Improving Enough

Certainly, there are a lot of reasons to get behind Alibaba. It, along with fellow e-commerce player JD.com (JD), holds about 60% of the market for business-to-consumer (B2C) e-commerce in China. Given the size of the Chinese market, that’s quite a bit of reach.

Reports note, however, that both Taobao and Pinduoduo (PDD) represent more popular online marketplaces. Taobao alone represents nearly half a billion average monthly visitors.

Chinese stocks, in general, are drawing particular interest with U.S. investors; shares of Tencent Music Entertainment (TME) saw both long drops and recovery in recent trading, for example.

That’s good news for Alibaba investors. It’s also good news that the company has incredible upside potential. The current price targets make that clear. It’s trading closer to its lowest targets than its highest. That means quite a bit of potential room for improvement.

Even looking at what Alibaba was trading at just a few months ago suggests potential improvement. It wouldn’t be at all amiss to think of this as a buying opportunity.

However, there are significant macroeconomic headwinds to consider. As a B2C e-commerce play, Alibaba depends on disposable income. People have to be able—and willing—to shop in order to realize the full potential of e-commerce plays.

The current state of the global economy suggests that’s not likely to be the case much longer. Worse, supply chain issues are likely to weigh on e-commerce operations. They’ll be fighting for the same less-available product as other retailers.

Throw in a regulatory environment that verges on downright belligerence, and it’s not a good picture for Chinese e-commerce right now. For weeks now, the Chinese government has been actively cracking down on companies under its purview.

Concluding Views

Things are improving for Alibaba. It’s worth keeping an eye on this company to see if it can recover to its previous levels. A massive boost in its share buyback plan can’t hurt either. Due to sheer scarcity, taking shares out of the picture will likely improve their value. As we’ve seen with the supply chain mess, prices go up when things are harder to find.

However, it may be a better idea to sell back to a clearly willing buyer than to buy more yourself. The overall environment for Chinese e-commerce isn’t the best right now.

Certainly, the bull case is improving for Alibaba. Nonetheless, the conditions ahead are hazardous. With so many potential pratfalls afoot, keeping your distance may be the best play here.

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