Chinese e-commerce giant Alibaba Group Holding Ltd. (NYSE:BABA) continues its downward spiral with negative news coming in from all sides. A resurgence in COVID-19 cases in China is leading to a fresh round of lockdowns across cities. Also, news of the U.S.’s ban on the export of chips to China dragged down Chinese ADR stocks this week.
Further, high inflationary numbers, declining consumer spending, hawkish monetary policies worldwide, and a slowing economy have all piled up on BABA’s stock performance lately. Despite the headwinds, Mizuho Securities analyst James Lee remains optimistic about BABA’s future growth potential.
Despite Headwinds, Lee Remains Optimistic about BABA
Lee has high conviction in BABA’s strategy of margin expansion and maintains a Buy rating on the stock. The analyst has a $160 price target on BABA, implying an impressive 113.3% upside potential to current levels.
In recent checks, Lee found that Alibaba’s gross merchandise value (GMV) is tracking marginally below consensus. Furthermore, Lee believes that the lockdowns won’t have as much of an impact on Alibaba’s sales. However, weak consumer sentiment is hurting sales.
Despite these bottlenecks, Lee expects BABA to post above consensus profitability, owing to disciplined cost management. Having said that, Lee pointed out that Alibaba’s cloud business could put a drag on revenue in its Q2 results slated for November 4.
Finally, Lee noted some catalysts that could help boost Alibaba’s future growth potential. These include margin improvements, a formal resolution to the audit agreement to reduce regulatory pressures, improvement to China’s macroeconomic environment, and the completion of Ant Group’s restructuring.
Is BABA a Buy or Sell?
With 12 unanimous Buys, Alibaba stock commands a Strong Buy consensus rating. the average Alibaba price target of $143 implies a massive 90.6% upside potential to current levels. Meanwhile, the stock has lost 37.7% so far this year.
Ending Thoughts
There is a rapid decline in the Chinese economy, affecting businesses across almost all sectors. BABA’s heavy reliance on consumer spending power makes its current position very precarious. Nonetheless, Alibaba enjoys a strong foothold in the Asian markets and stands to benefit enormously once the headwinds are cleared.
