Despite Alibaba ‘s leading position in China’s e-commerce market, long-term investors have little to show for it. The company went public on the NYSE in 2014 and has been profitably growing its revenue ever since. The stock, however, is trading at roughly the same level it did nine years ago. The first six years of the company’s life as a public entity looked quite promising, though.
Alibaba reached an all-time high of over $319 a share in October, 2020. That was just before Jack Ma, the company’s founder and patron, had the imprudence to criticize the Chinese government’s “outdated supervision” of financial regulation for stifling innovation. Then, all hell broke loose for Alibaba and the Chinese tech industry. After two painful years of fines and regulation, by October, 2022, the stock was down more than 80% to $58.02.
Several months later, in March, 2023, the company announced that it was going to split into six separate entities. The decision is supposed to both make the company more efficient and alleviate antitrust pressure from the Party. Investors initially approved the plan and the stock more than doubled to $121.30. Unfortunately, those gains proved to be short-lived. Alibaba is barely holding above $86 a share in pre-market trading today.
It is difficult to be bullish on a stock, which has been dead money for nine years. The best bargains, however, are found just when nearly everyone has already given up on them. In this case, despite the geopolitical risk, Alibaba is still arguably Asia’s best company in terms of both scale and profitability. Add its significant net cash position and cheap valuation, and the risks begin to appear more than acceptable. Besides, Elliott Wave analysis suggests the stock might actually be in an uptrend already.
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The 4-hour chart of Alibaba stock reveals that the recovery from $58 to $121 is a five-wave impulse. We’ve labeled the pattern 1-2-3-4-5, where the five sub-waves of wave 3 are also visible and wave 5 is extended. Impulses form only in the direction of the larger trend. This pattern means Alibaba is in an uptrend.
The current drop therefore stands for the natural three-wave correction, which follows every impulse. It is shaping up as a simple A-B-C zigzag with an a-b-c-d-e triangle correction in wave B. If this count is correct, we can see more weakness in wave C to the low-$70s. Once there, however, the 5-3 Elliott Wave cycle would be complete and the bulls would be eager to return in wave (3/C).
The level the bears must not breach in order for this count to remain valid is $58. As long as $58 holds, initial targets near $140 remain plausible. Given Alibaba ‘s high business quality, $200 and beyond is not out of reach either in the long term. The next couple of years may look nothing like the past three.
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Disclaimer: The author is long Alibaba in The EWM Interactive Stock Portfolio.
