After months of declines and underperformance, the ADR (American Depositary Receipt) of Alibaba (NYSE:BABA) closed about 37% higher on Wednesday.
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Along with Alibaba, the ADRs of other major Chinese companies also closed higher. For instance, Nio (NYSE:NIO) and JD.com (NASDAQ:JD) rose 25.6% and 39.4%, respectively.
Investors’ new-found love for Alibaba stock stems from favorable commentary from the Chinese vice-premier Liu He. Per a Reuters report, Liu called for policies that are market-friendly and add stability.
This is reassuring as the regulatory risk was among the most significant concerns hurting Chinese stocks listed abroad.
Further, fear of delistings and growing geopolitical tension amid the Russia/Ukraine conflict led investors to dump Chinese stocks.
Recently the U.S. SEC (Securities and Exchange Commission) issued a provisional list of Chinese stocks that failed to adhere to the Holding Foreign Companies Accountable Act. Read more: Alibaba Stock Drops Below $100: What’s Next?
Amid the concerns, J.P. Morgan analyst Alex Yao downgraded several Chinese internet stocks calling them “uninvestable.”
Yao double downgraded BABA stock to a Sell from a Buy and reduced his price target to $65 from $180. The analyst stated that investors are reducing exposure to Chinese internet stocks amid macro and geopolitical risks. Yao expects BABA stock to trend lower in the near term.
Notably, Alibaba’s Q3 revenues fell short of analyst estimates due to the weaker-than-expected macro environment in China. Moreover, the company also blamed higher competitive activity for soft sales.
However, the massive drop in Alibaba’s stock price and compression of its valuation has kept most Wall Street analysts bullish. Alibaba sports a Strong Buy consensus rating on TipRanks based on 20 Buy, two Hold, and one sell recommendations.
Moreover, the average Alibaba price target of $173.30 implies 65.1% upside potential to current levels.
Conclusion
Alibaba’s investments in growth initiatives, including cloud infrastructure and international expansion, and growing active consumer base bode well for growth. Moreover, Liu’s comments could ease pressure on Chinese stocks, including Alibaba.
However, the high level of uncertainty regarding geopolitical and macro concerns makes Alibaba a risky bet.
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