NYQ:BABA | BABA - Good Time To Buy At Sub $200?

25th Jul by TinTin05

11 comments 709 reads

I have spent a good portion of the weekend learning about and assessing Alibaba. Thinking of taking the plunge in the next few days or weeks. I plan to invest for the long-term so buying-in at sub-$200/share has considerable appeal although not without risks clearly. I’d welcome the thoughts of others please.

Unlock with Facebook

Unlock with Google

or Unlock with your email

Already have an account?
Login here

About the Author

TinTin05

Premium Member

11 comments

IGotPoesJacket

25th Jul

Personally I don't trust the numbers coming out of any company based in China. Too many scandals and outright frauds in recent years.

For balance, a big chunk of my workplace pension (Fidelity) is invested in TenCent and AliBaba, and they're smarter than me (doesn't make me happy about it though)

jwebster

26th Jul

Alibaba is a great company and cheap right now. Baidu and Tencent look interesting as well.

But they are cheap for a reason.

Firstly, the US regulator has demanded Chinese firms release their audit reports. The Chinese regulator has banned any release stating it risks national information security laws. So this will come to a head at some point.

Second, the listings of BABA etc are not regular shares, the ownership of Chinese assets by foreigners is illegal without approvals, so the shares are structured as shell companies in the Cayman Islands with a share of the profits of Alibaba but no economic ownership interest. Technically, this could be illegal in China as a fudge of the regulations.

So some risks here that you would need to understand.

Wilkonz

26th Jul

As an ex-holder, I don't think this is a good time to buy $BABA. The price has been in decline for the last 8 months and, on technical analysis, looks like declining further, possibly down to $175 or even lower. The Chinese main indexes have lost about 25% over the last 5 months. This is probably a bad moment to buy anything Chinese as the markets are showing no signs of bottoming out.

Metatron

26th Jul

Technical analysis is very bullish on Alibaba as being oversold but be aware the Chinese govt has the scope to confiscate all foreign held shareholdings

ls2g08

26th Jul

I bought on the fairly recent relief rally, when it moved up towards 220 in June, meaning I am underwater at present.

Looking at the numbers there isn't a better deal in the stock market I feel. However the political risk is very real and the company should not be valued in line with the FANG cos. However I do think that China will not kill it's tech leaders, as they are the only way they will be able to compete on the global stage with the US and give them a "soft" power route.

In hindsight I should have bought the listed shares in HK instead of the US ADR, to avoid some of the issues that jwebster points out. I will probably look to make this switch soon.

mwjackson

26th Jul

re: the HK listing, are you not worried about the CCP forcibly acquiring or otherwise manipulating the company outside of shareholder control?

Whereas at least with the ADR you get some exposure to the underlying asset with a *little* more protection

ls2g08

26th Jul

My feeling is China is much more likely to have a go at the ADRs than the HK listings as they are pretty ropy from a legal standpoint I understand.

Markds28

26th Jul

Plenty of good arguments for and against. I personally believe that BABA is an exceptional company along the lines of what Amazon is to US/UK but in BABA's case they are the early leader in cloud computing in China but are still losing money at it. When they get to scale like AWS the group will be throwing off cash at a ever more impressive rate. Added the core e-commerce, retail and distribution businesses this company has alot of growth ahead of it still in a country still growing far faster than western economies.

Longer term China will support its champions as they expand internationally I believe. Longer term maybe it ends up with just a HK listing rather than both HK & US. I don't see that as an issue for an international investor.

Currently its at least $100+ cheaper than it should be due to political risk. Munger has been a buyer this year via one of his vehicles, I suspect he is looking at long term and sees the policitical risks as a opportunity as well as a risk. I'll be holding onto my modest position.

jwebster

27th Jul

Fairly steep sell off this morning in HK. I'm following Alibaba, Baidu and Tencent as a China big tech trio.

Likely in response to CCP making it illegal for tutoring companies to earn profits, raise capital, or list abroad. And this is after the Didi clamp down.

Also, the FT.com reported ARK funds have sold down their china tech stakes last week. Interesting to read they have thrown in the towel. Perhaps other funds have as well.

Possibly worth buying a few soon on max pessimism, although the chart looks grim.

timarr

27th Jul

The problem here is that China doesn't respect the rule of law so the government can strip assets from companies and the judiciary won't stop them or force them to compensate shareholders. Mao style communist control and free market capitalism don't mix.

Historically, when this sort of thing happens it bodes badly for share prices. Couple that with a belated recognition among Western governments that a dependency on China for critical supply chains is a risk then you're looking a slow motion decoupling of economies.

China, of course, is now a big enough extended economy in its own right, especially when you consider the dependent countries along the Belt and Road, to keep growing, but the risks to Western shareholders are increasing by the day. It's increasingly looking like a rerun of the Cold War with Taiwan standing in for Germany.

So yes, some of the Chinese tech stocks look cheap. But when the CCP is pulling the strings then it's hard to know what fair value really is.

timarr

TinTin05

28th Jul

Thank you for all your comments. Interesting article today at https://www.reuters.com/articl... suggesting that investors should reconsider the China growth forecast in light of "a new era that prioritises fairness over efficiency".

Perhaps the title to this discussion should be "... buy at sub $170?"

Unlock the metrics for all these stocks and more...

Unlock with Google

Unlock with Facebook

Unlock with Email

Unlock with Google

Unlock with Facebook

or Unlock with your email

Facebook Twitter Youtube Instagram RSS

This site cannot substitute for professional investment advice or independent factual verification. To use it, you must accept our Terms of Use, Privacy and Disclaimer policies.

Unlock the metrics for all these stocks and more...

Unlock with Google

Unlock with Facebook

Unlock with Email

Unlock with Google

Unlock with Facebook

or Unlock with your email

BABA - good time to buy at sub $200?

Unlock the rest of this article with a 14 day trial

About the Author

TinTin05

11 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...