Is it too late to buy BABA after the rally? — TradingView News

Chinese stocks, which as an asset class have underperformed global markets in recent years, came back to life last week after the country launched a flurry of stimulus programs to revive its economy. Alibaba BABA The stock gained over 21% last week, extending its YTD gain to 38%. BABA has hit a series of new 52-week highs as investors pour into Chinese stocks and expect further stimulus measures from the world's second-largest economy.

Of course, the year started badly for Chinese stocks, including BABA; The Chinese e-commerce giant fell below its IPO price of $68 in January. Since the company went public in the US in 2014 and only started paying dividends last year, it delivered negative returns for almost a decade.

Alibaba may have recovered from its 2024 lows, but it is still well below its 2020 highs. Here is the Q4 forecast for BABA and a look at whether the stock's rally can continue into the final quarter of the year .

What does China's economic stimulus mean for Alibaba?

China has eased monetary policy, which will result in lower mortgage payments for borrowers. In theory, this will put more money into the hands of consumers and lead to higher consumption. China is making cash available to the poor, which should also boost consumption. The country is also trying to support its ailing real estate sector, the slowdown of which has had far-reaching effects on the Chinese economy.

These measures should help improve investor sentiment, and most analysts have largely welcomed the long-overdue stimulus, the biggest since the COVID-19 pandemic. However, some others are concerned and doubt that this will be enough to combat the structural downturn in the Chinese economy.

However, it remains to be seen whether these measures can boost consumption in the world's second most populous country. However, the Communist Party's Politburo has shown a strong intention to support the economy and meet growth targets – set at 5% this year. With a slowing domestic economy and tensions with trading partners, stimulus looks like China's “all it takes” moment.

Alibaba stock forecast

Alibaba has received a Strong Buy consensus rating from 17 analysts covering the stock. However, after last week's outstanding rally, BABA has surpassed its average price target of $105.02. His maximum price target of $130 is about 21% higher than Friday's closing prices.

I believe that seller analysts will also gradually increase Alibaba's price target as the company's prospects have improved given China's intention to support the economy. However, China's leaders still need to do much more to lure foreign investors back to the country, as their confidence has been shaken by President Xi Jinping's tech crackdown and strong communist ideological moves.

A possible second presidency of Donald Trump is another major risk for China. The Biden administration has not been soft on China either, most recently cracking down on the “de minimis” trade provision that allowed companies like Temu and Shein to import goods into the U.S. without paying tariffs. However, a second Trump presidency could only increase tensions between the countries.

Can Alibaba shares rise even further?

While Alibaba shares have rebounded strongly from their 2024 lows, the company's valuation still looks tenuous, with its trailing-12-month price-to-earnings (P/E) ratio (NTM) of 11.84x offering room to run for a further increase if China succeeds in taking further measures to revive the economy and improve market sentiment.

However, it would be wise to take economic announcements with a grain of salt and there is nothing to suggest that the country will move towards a more stable political environment. However, I believe BABA stock can continue to rise from this level given the company's low valuations and strong fundamentals.

Alibaba has largely pushed regulatory issues into the background. Last month, the company completed a three-year regulatory “rectification process” initiated in 2021 that also saw the company pay a record $2.8 billion in fines for antitrust violations.

Its fintech subsidiary Ant Financial has also overcome regulatory hurdles and the company may seek a public listing at some point in the future (its 2020 IPO was famously canceled by China after Jack Ma criticized the country's regulators). Last year, Alibaba restructured its business into six units and planned to list them on the stock market to create value for shareholders. But those efforts took a hit when the company canceled the IPO of its cloud segment last year as the U.S. crackdown on chip exports to China hurt that business.

Overall, Alibaba's core e-commerce business is stabilizing, while its cloud business is also showing signs of improvement. Given the improved sentiment, I believe it's not too late to buy Alibaba shares – and while BABA may not return to its 2020 highs anytime soon, its returns years down the line can still rival those of its U.S. stock resident technology colleagues keep up with underperformance.

At the time of publication, Mohit Oberoi held a position in: BABA. All information and data in this article are for informational purposes only. For more information, please see Barchart's disclosure policy here.