Chinese e-commerce giant Alibaba Group has rebounded sharply in recent sessions from all-time low as investors turned to the stock on attractive valuations and improving regulatory conditions for China’s tech sector.
Hong Kong-listed Alibaba shares fell to a record low of HKD132 last week, a near 60% drop from all-time high of HKD309.4 hit less than a year ago, following an intense regulatory crackdown by Beijing on China’s private sector.
In recent sessions, Alibaba shares have posted strong recovery to gain as much as 29% in a four-day winning run. News of renowned value investor Charlie Munger boosting his Alibaba shareholding by over 80% in the third quarter of 2021 has added to investor confidence.
Ivan Su, senior equity analyst at Morningstar, said yesterday that investor sentiment for China’s tech sector will improve as the majority of policies have already been laid out.
“History has taught us that these times can be the best times to invest,” Su added, having seen the Hang Seng TECH index lose about 24% year to date.
“Value is emerging but we expect equity markets to remain volatile in the near term until there is further clarity to ease regulatory concerns,” said Lorraine Tan, Morningstar’s director of equity research in Asia.
In comparison to its big tech peers, Alibaba is currently trading at a price-earnings ratio (PER) of around 25, while gaming-to-music services company Tencent holds a PER of 20, as of Wednesday morning. Alibaba’s e-commerce rival JD.com is trading at relatively higher valuation, holding a PER of about 83.
In comparison, the average PER for S&P 500 firms has historically ranged from 13 to 15, however tech firms typically operate on higher multiples due to greater growth expectation than established firms.
“Alibaba is at the center of the consumption-driven economy and online shopping, undergirded by its strong technological strength vs peers,” Jefferies said in its latest report on Alibaba.
Jefferies reiterated its buy rating and set a price target of HKD328 for its Hong Kong-listed shares and $336 for its US-listed shares.
Multiple growth drivers
“Alibaba has multiple growth drivers in the years ahead, with its core marketplace a strong cash cow enjoying secular momentum amid consumption upgrade in China, thanks to solid execution and technological strength in digitalizing the retail sector with enhanced efficiencies,” said Jefferies added.
Tuesday saw Hong Kong-listed Alibaba shares snap its four-day winning streak as it closed 3.9% lower.
Investors now look forward to Alibaba's September quarter earnings due later this month.