While Alibaba (BABA) stock had a strong start to the year, it has looked weak over the last three months, gaining just 1.4% over the period. The stock is still up a handsome 27% for the year, but trades 27% below its 2025 highs. In this article, we’ll discuss why BABA stock looks like a strong buy following its recent underperformance.
To begin with, let’s look at the reasons behind the recent weakness in Alibaba stock. Alibaba’s recent financial performance has underwhelmed, and the company missed March quarter earnings by a mile, with its profits coming in at just about half of what analysts were expecting. It is also facing intense competition in China from the likes of PDD (PDD), JD.com (JD), and TikTok’s parent company, ByteDance, and markets are apprehensive about the potential losses in the instant delivery business, given the fierce price war in that market.
Last week, Alibaba completed the sale of bonds worth $1.5 billion that are exchangeable into shares of Alibaba Health Information Technology, after which the stock saw selling pressure. Finally, the lack of any new major stimulus measures from China has also put pressure on names like Alibaba.
Despite these challenges, BABA remains a Wall Street favorite and is rated as a “Strong Buy” by 19 of the 21 analysts covering the stock. One analyst each rates it as a “Moderate Buy” and “Hold,” while the mean target price of $163.12 is nearly 50% higher than current price levels. Alibaba stock trades even below the Street-low target price of $140, while the Street-high target price of $180 is over 65% higher.
Analysts’ optimism towards Alibaba seems related to its tepid valuations. The stock trades at a forward price-earnings (P/E) multiple of 11.57x while the P/E-growth (PEG) multiple is 0.47x. While such low multiples are almost unheard of for U.S. tech stocks, the valuations of Chinese tech companies have taken a structural hit following the tech crackdown of 2021, and U.S.-China trade tensions are not helping matters either.
Alibaba’s growth has visibly slowed down as first, the Chinese economy is no longer the kind of growth engine that it once was, and second, there is intense competitive pressure that’s putting pressure on Alibaba’s top-line growth and margins.
