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Motley Fool Issues Rare “All In” Buy Alert
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Chinese technology conglomerate Alibaba Group (BABA 5.31%) remains as tempting as ever for investors. The company, one of the largest companies in one of the world’s largest economies, continues sliding, now down 76% from its peak.
But its slide seems more than justified, and the dark clouds hanging overhead should make the admittedly cheap valuation irrelevant to investors. Here are three reasons investors should think twice before investing in Alibaba in 2023.
United States investors are still at risk when investing in Chinese-based businesses; relations between the two countries are tense, which brings some uncertainty into the equation. For example, the U.S. Securities and Exchange Commission requires access to financial audit records of Chinese companies like Alibaba. Alibaba was placed on a watchlist for delisting from U.S. exchanges earlier this year for failing to comply with this requirement. Delisting appears unlikely at this point, and investors could still trade shares in over-the-counter markets in the event of delisting. Still, it could undermine investor confidence in the stock.
Political headaches aren’t just between countries, but within China too. Alibaba has been at the receiving end of the Chinese government’s wrath, including blocking Ant Group’s IPO, in which Alibaba owns a significant stake. Chinese regulators also fined Alibaba $2.8 billion last year for antitrust violations, which some saw as an effort to reign in the influence of large technology companies in the country.
None of these developments have completely crippled Alibaba’s business, but one has to wonder what might happen in the future. Investing involves several variables you can’t control, and the additional risk of political interference is another headache to consider when buying shares of Alibaba.
Owning the stock might be a little easier to justify if Alibaba performed like a financial juggernaut, but that isn’t the case now. The company recently reported earnings for the quarter ending Sept. 30, with some question marks. Core business segments are struggling; China commerce, its largest business, saw revenue shrink 1% year over year. Meanwhile, Alibaba’s cloud computing business grew revenue by just 4% over the prior year’s quarter.
Contrast that with American rival Amazon, which grew its e-commerce business in North America by 20% year over year in Q3 and its cloud business (AWS) by 27% year over year. Alibaba isn’t keeping pace, which makes it harder to justify putting up with the political baggage that comes with the stock.
Lastly, look no further than this ongoing bear market as a reason to avoid Alibaba. Famous and widely successful investor Warren Buffett once said: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” It seems like it’s raining gold in this bear market. Everywhere you look, stocks are down 25% to 80%.
You can easily find stocks to buy with solid fundamentals and without the political clouds Alibaba has. Alibaba is a stock that a bold investor might kick the tires on when high-quality buying opportunities are hard to come by, but it’s not that time right now.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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