When the tax-loss selling on Alibaba (BABA) shares ended, the stock staged an impressive rally. Yet last week, the stock turned back after looking like it would continue its uptrend. What happens if the dip in BABA stock intensifies?
China will ultimately determine Alibaba’s stock price in the coming months. The Chinese government is building on a Common Prosperity platform that will re-shape every aspect of the country. In technology, the government will not allow any firms to have more privacy data than central governments. It will limit Alibaba’s data-driven view of customer behavior, hurting its growth.
China will help smaller technology firms build market share at Alibaba’s expense. By encouraging competition, customers will get better product prices and service quality. Again, the tougher market conditions may add to Alibaba’s operating costs.
Alibaba already forecasted revenue growth in the low 20%. This is below its historical average. Investors cannot use its past share price or growth rate as a guide to its future value.
A steep dip in BABA stock would discount the valuation further. It will give investors a better stock price to compensate for future risks ahead. Value investors should welcome a continued downtrend. Once that pattern ends, consider starting a position in the Chinese e-commerce mega-cap stock.