Considered by many to be one of the biggest jewels of the Chinese economy, Alibaba Holding Limited (BABA) has been considered ‘China’s Amazon’ and an investors’ darling for years.
But the once-mighty online retail giant has seen a gradual slide in its stock price since the heights of its powers during pandemic-era 2020, which saw Alibaba’s stock price regularly top 300 Hong Kong dollars (HKD) as online shopping skyrocketed worldwide.
It is now hovering at around HKD 81.50 per share – losing over 70% of its share price (or HKD 232.50) since October 29 2020.
Why has Alibaba’s stock price fallen more than 70%?
The reasons for these have been myriad. One of the more macro reasons is that the Chinese economy which once bolstered its success has fallen on hard times in the post-pandemic era. China is battling threats of deflation, a real estate market in real crisis (which has eerie similarities to the pre-global financial crisis housing market issues in some analysts’ opinions) and ever increasing government debt.
With all this going on, it’s no wonder that Alibaba’s main customers, Chinese shoppers, are spending less these days – and volume of sales will be a crucial item investors will look for in tomorrow’s report.
Another reason for Alibaba’s headwinds has been stiffening competition, such as from rival PPD Holdings (the owners of Chinese fast fashion and ecommerce platform Temu), which has seen them lose significant market share.
Previous results
But arguably the most relevant reason that market participants are nervous ahead of tomorrow’s results – which has also affected Alibaba’s stock price many times – is its bad track record with earnings of late.
Alibaba has come to have something of a reputation for missing EPS forecasts and other crucial metrics during earnings season. Last quarter, for example, the company’s net profits declined more than 70% in what The Motley Fool called “objectively terrible” results.
Alibaba technical analysis
Invezz analyst Ritesh A. provided some insight into where Alibaba is standing from a technical trading chart’s perspective ahead of earnings:
BABA’s stock has been trading in a very narrow $70 to $80 range this year, subjecting traders at both ends of the spectrum – long and short – to whipsaws. Although signs of a breakout have emerged ahead of earnings, with positive momentum building since late April, caution is warranted for those considering a position in BABA at this point.”
So, should you buy the Alibaba dip? Sell? Or steer clear?
There are a few ways to look at this information. Some traders and investors may look at a potentially disappointing set of results tomorrow as an opportunity to ‘buy the dip’ on an enormously valuable company – but that runs the risk of predicting incorrectly here. And the market has been bullish today ahead of Alibaba’s earnings, with its stock price up by over 4% so far in intraday trading on May 13.
Another way to look at Alibaba is as unfortunate collateral damage for a flailing Chinese economy and steer clear, or sell. But again, this fails to take into account the inherent positives of a company that has become a household name in countries all over the world.
While we cannot offer financial advice – and no investment or trading decisions should be made on anything other than your own personal research and due diligence – we think caution is the name of the game here. As Ritesh A. says:
Investors who have recently entered the stock may hold their positions if it remains above $65. However, it’s crucial to recognize that a true breakout from this range and potential for further gains will only be confirmed if the stock sustains a close above $87.8 for two to three days.”
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