A series of positive developments, including favorable commentary from Chinese vice-premier Liu and an upsized share buyback plan, led the ADR (American Depositary Receipt) of Chinese internet giant Alibaba (NYSE:BABA) to bounce back from its recent lows.
However, it has reversed some of its gains and has fallen about 14.5% over the last 10 trading days. Further, Alibaba stock is down more than 55% over the past year.
What’s Hurting Alibaba?
The resurgence of the coronavirus, ongoing macro headwinds, and increased competitive activities could hurt Alibaba’s near-term financials and limit its upside potential. Further, the current geopolitical environment remains a drag.
It’s worth noting that China’s GDP growth has decelerated, while consumption is slowing. Further, the recent surge in infections and lockdowns are expected to hurt economic activity in China, and in turn, Alibaba.
Citigroup analyst Alicia Yap expects the pandemic and lockdowns to take a toll on Alibaba’s profit. Further, the analyst expects the pandemic to delay the recovery process. Yap maintains a bullish stance on Alibaba but lowered the price target to $177 from $200.
Besides Yap, several analysts have recently cut their price targets on BABA stock. Charlene Liu of HSBC expects COVID-19 and geopolitical headwinds to hurt Alibaba’s financials. However, the analyst recommends a Buy on BABA stock, citing limited downside risk and a favorable risk/reward scenario.
While analysts reduced price targets, TipRanks data shows that hedge funds have been offloading BABA stock. Per the TipRanks Hedge Fund Trading Activity tool, hedge funds decreased their BABA holdings by 252.9K shares in the last quarter.
Bottom Line
The slowdown in the Chinese economy, the recent spread of the virus, and disruptions from the Russia/Ukraine conflict pose challenges for Alibaba. However, BABA’s dominant positioning, growing active consumer base (Alibaba added 43 million active consumers in Q3), and ongoing investments in logistics networks and global cloud infrastructure provide a solid base for long-term growth.
BABA stock has received 16 Buy and one Sell recommendations for a Strong Buy consensus rating. Further, the average Alibaba price target of $174.12 implies 74.6% upside potential to current levels.
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