Collecting by basics and enhanced macro background

Chinese tech stocks like Alibaba Group (NYSE:BABA) have recently faced some headwinds that have negatively impacted the companies’ stock prices. These headwinds include regulatory pressure and China’s ties to Russia. The Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, is currently down 9.42% YTD, with tech giants Alibaba Group and Tencent Holdings leading the decline. Uncertainty surrounding Chinese technology stocks is compounded by fears of additional US sanctions. Despite these fears, Alibaba Group is performing well on its fundamentals, and because of these factors, some analysts are taking a bullish stance on the company. – MarketBeat

The Fundamentals of Alibaba Group

Alibaba Group is currently down 19.74% YTD and trading 49% below MarketBeat’s consensus price target. As the company is seriously lagging behind analyst expectations, this could be seen as the company is undervalued at current levels. Some investors took notice as the company’s stock rose 15% after it released its Q4 FY 2022 earnings results, showing it convincingly outperformed revenue and earnings estimates. The company closed the fourth quarter with a non-GAAP EPDAS of RMB 7.95, profit of RMB 0.78, and revenue of RMB 204.05B, an improvement of RMB 4.62B, for 8.9% YoY -grow.

When we go to the operating segments of the company, we can see where the strength of the company lies. Alibaba Group’s e-commerce segment, which accounts for 69% of the company’s total revenue, is doing well. Revenues from this segment were up 8% year-on-year to 140.3 billion Chinese yuan. The company also added 28 million new e-commerce users to its platform, reaching a total of 1.3 billion active customer accounts.

One thing to note about Alibaba’s fundamentals is that it declined to provide revenue expectations for the remainder of this year. Company executives stated that the resurgence of COVID-19 in China poses significant risks and uncertainties that hinder its ability to accurately forecast performance in the near future. Regardless, the company forecasts healthy operating cash flow in FY 2022.

China’s crackdown on tech stocks is easing

Tech stocks in China have been hit hard by the Chinese government’s initiatives to rule in their power since 2020, but this is now showing signs of easing. Government officials recently met with leaders in China’s technology sector to ease tensions and stop the violent sell-off of these companies by foreign investors. After the meeting, analysts at JPMorgan upgraded the ratings of several Chinese internet companies, including Alibaba, from underweight to overweight. This means that analysts expect these stocks to outperform average total returns over the next six to 12 months.

Alibaba Group buys shares

Adding to the story that Alibaba Group is undervalued at current levels, the company made an announcement that it will increase the number of share buybacks under its share buyback program. Alibaba Group has now agreed to buy $25 billion worth of shares from the market. If the company successfully completes its buyback program, it will be the largest ever undertaken by a Chinese tech stock. So far, the company has repurchased $9.6 billion worth of shares in the past 12 months. The company has gradually increased its share repurchase program, starting with $6 billion in May 2019, $10 billion in December 2020, and then $15 billion in August of the same year.

Alibaba Group Technical Analysis

Alibaba Group is in a clear downward channel that started at the beginning of this year. Stocks look promising to break out of this channel as momentum has shifted upward for a while, but volume is not currently supporting this upward move. Due to ongoing concerns about the coronavirus pandemic in China and the lockdowns in Shanghai, greater volatility in the company’s earnings and technical data is expected in the near future. As it stands, the company appears to be continuing its downward trajectory before returning to its average price.

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