The Alibaba (NYSE: BABA) stock price has underperformed the broader market this year. It has declined by almost 10% this year while the S&P 500 and Nasdaq 100 indices have risen by more than 14% and 16%, respectively. Its peer companies like Amazon and Microsoft have also jumped. This decline brings the company’s market capitalization to more than $590 billion.
Alibaba under pressure
The Alibaba stock price has lagged because of the rising challenges for Chinese technology companies. The company has also been under investigation by Chinese authorities after Jack Ma rebuked the country’s regulators.
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In April, the company received a $2.8 billion fine from Chinese regulators for stifling competition in the country. The firm committed itself to change its business practices.
At the same time, Ant Financial, a company that Alibaba has a stake in has been under investigation. The company has been forced to form a holding entity that will be regulated like other traditional companies.
As a result, Ant will find it difficult to achieve the substantial growth that it had a few years ago. In fact, analysts believe that the firm’s valuation has dropped to less than $30 billion from a high of more than $320 billion.
The Alibaba stock price is also falling after China intensified its pressure on some of the top startups from the country. It ordered Didi to stop onboarding new customers and its applications are not available in Google and iOS stores. The Didi stock price crashed by more than 25% in premarket trading. Other Chinese tech companies that have been targeted are Full Truck Alliance and Kanzhun.
Is BABA stock a buy or sell?
While Alibaba is facing significant challenges, it is still a wonderful franchise with a solid balance sheet. Recent numbers show that it has more than $73 billion in cash and short-term investments and just $22 billion in total debt. In addition, its business is still growing.
Its revenue rose to more than $109 billion in 2020 while its net income soared to more than $20 billion. Notably, the net income is relatively similar to that of Amazon, which is valued at more than $1 trillion. Alibaba also released strong Q4 earnings.
Analysts believe that the Alibaba stock price will likely keep rising. Those at Truist expects it to rise to $290, which is substantially higher than where it is today. Similarly, those at Baird, Citigroup, Benchmark, Keycorp, and Stifel expects it to rise to more than $280.
Alibaba stock price analysis
The daily chart shows that the BABA stock price declined to $204 earlier this year. It then rebounded to the 23.6% Fibonacci retracement level at $231 and then it declined again. The shares are along the 50-day and 25-day exponential moving averages (EMA). The chart also shows that it has formed an inverse head and shoulders pattern. Therefore, the shares will soon bounce back as investors target the 38.2% retracement level at $250.
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