After a bruising year so far, China’s recovery won’t be simple or quick. Yet, if you anticipate that conditions in the country will improve, Alibaba (NYSE:BABA) stock is definitely worth a look. Additionally, I am bullish on BABA stock because the company has demonstrated impressive financial results despite challenging macroeconomic conditions.
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Alibaba is based in China and provides a popular e-commerce platform. Yet, there’s much more to Alibaba than e-commerce. For example, the company has a cloud division and a work communication and collaboration platform called DingTalk – which Alibaba might soon split up and/or take public through an IPO, by the way.
The point is, Alibaba has a vast presence in China’s technology sector. If China’s economy is healthy, then Alibaba is probably doing well, and vice versa. Hence, you really would need to have a bullish outlook on the nation if you plan to invest in the company, and if everything goes according to plan, China and Alibaba can succeed in tandem during the coming months.
Alibaba Stock Goes Nowhere in 2023
Call it a tale of two tech markets, if you’d like. While U.S. tech stocks have flown high in 2023 so far, China-based technology stocks have performed relatively poorly. Alibaba stock is a representative example, as it has basically gone nowhere this year.
That’s most likely due to market-wide trepidation over China’s economy as opposed to Alibaba in particular. We’ll discuss China’s economic situation in a moment, but first, it’s worth noting that Alibaba delivered solid results despite the nation’s ongoing problems.
Specifically, Alibaba continued its stellar track record of quarterly EPS beats by delivering earnings of $2.40 per share in the quarter that ended in June versus Wall Street’s call for $2.02. As a basis of comparison, Alibaba earned $1.62 in the year-earlier quarter.
Truly, if China was in deep trouble during the quarter, you wouldn’t know it from Alibaba’s results. On a year-over-year basis, Alibaba’s revenue grew by 14%, its income from operations increased by 70%, and the company’s net cash provided by operating activities increased by 34%.
Consequently, some analysts took a more bullish view of BABA stock. Two examples are HSBC (NYSE:HSBC) analyst Charlene Liu, who raised the firm’s price target on Alibaba from $131 to $142, and Truist analysts, who lifted their BABA price target from $130 to $135.
Alibaba and China’s Challenges
These fiscal facts are certainly encouraging, but bear in mind that Alibaba cannot succeed for very long if China’s economy fails this year. Thus, it needs to be reiterated that you’ll want to have an optimistic outlook for China in general if you intend to invest in Alibaba stock.
Putting China back on track won’t be easy. The nation is still reeling from its strict COVID-19 lockdowns, which continued on and off from 2020 through 2022. Some commentators may have hoped for a swift recovery this year, but it hasn’t materialized, and the ripple effects of supply-chain constraints can still be felt throughout China’s economy.
These ongoing issues are reflected in many Chinese stocks, including Alibaba stock. However, 2023 isn’t finished yet, and neither is China’s unfolding story. Barron’s recently reported that, according to Chinese Premier Li Qiang, the nation’s government will implement pro-business policy changes and focus on “expanding domestic demand.”
I haven’t seen any specific details about this plan yet. However, Li did speak of the Chinese authorities’ intention to “accelerate the transformation and upgrading of traditional industries with new technologies and business models.” Hopefully, these words will be followed up by action in the form of business-friendly policy and, with that, top-down tailwinds for Alibaba.
Is BABA Stock a Buy, According to Analysts?
On TipRanks, BABA comes in as a Strong Buy based on 15 Buys and one Hold rating assigned by analysts in the past three months. The average Alibaba stock price target is $141.19, implying 55.75% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell BABA stock, the most accurate analyst covering the stock (on a one-year timeframe) is Rob Sanderson of Loop Capital Markets, with an average return of 16.18% per rating and a 60% success rate. Click on the image below to learn more.
Conclusion: Should You Consider BABA Stock?
I wouldn’t dare to predict a near-term recovery for China’s economy. It’s too complex of a system for me to speak upon at length. Still, we can’t deny Alibaba’s remarkable financial results amid China’s challenges.
In any event, if you’re going to risk your hard-earned capital on any Chinese business now, Alibaba is as good as any. All in all, BABA stock is a great investment to consider, especially if you expect China’s current problems to be temporary and surmountable.
