Where Will Alibaba Stock Be in 1 Year?

Following a general selloff of US-listed Chinese stocks, eCommerce giant Alibaba (NYSE:BABA) was down over 50% from its highs. 

 

After the recent selloff, Alibaba may look like a bargain to some investors. The company has been a historic winner, often growing by substantial double-digit numbers.

 

While growth was far more sluggish last year, there were still some positive pieces of data in the most recent earnings report. Cloud computing, for instance, saw a 20 percent year-over-year increase in revenues.

 

Many of the company’s current troubles are directly linked to the Chinese government and economy (more on that below), making international growth all the more important.

 

 

One of the most promising factors that could help the company’s stock to recover is its free cash flow margin. With a FCF of 19 percent, Alibaba has a rather strong cash position. This could help it ride out some of the general difficulties it faces and support a higher stock price over the next year. 

 

The selloff has also left Alibaba with a reasonably attractive valuation. The P/E ratio for the stock currently stands at around 12, making it quite low for an eCommerce and tech giant. At this price, many investors may decide to take a chance on Alibaba, even if the company could turn in lower growth results than usual in the coming quarters.

 

A final factor that may help Alibaba’s share prices in the near future is the company’s push toward higher efficiency. Like its American counterpart Amazon, Alibaba is attempting to reduce inefficiencies across its business, particularly in the supply chain.

 

Doing so could help the company to improve its margins and retain a strong competitive advantage. With better profitability, Alibaba could see a move toward higher share prices in coming quarters.

The single biggest risk factor for Alibaba is likely a marked economic slowdown in China. In Q4 2021, the Chinese economy saw year-over-year growth of just 4 percent. This translated to a fairly weak 3 percent growth in retail sales for Alibaba in China.

 

 

The economic situation in China has been made much worse by a zero-tolerance approach to infections. Recently, the country locked down some 30 million citizens in an attempt to tamp down outbreaks.

 

Given that the rest of the world is rapidly dropping restrictions, this approach puts China, and by extension Alibaba, in a poor competitive position. While this situation is clearly outside of Alibaba’s control, the share of business the company conducts in China leaves it heavily exposed to macroeconomic conditions there.

 

China’s regulatory state has also exerted downward pressure on Alibaba. The company has been through a series of probes that have placed it squarely in the sights of Chinese regulators. The most recent regulatory issue occurred in December when Chinese authorities punished the company for failing to report a cybersecurity vulnerability.

 

Probes of Alibaba have been part of a larger regulatory crackdown on Chinese tech companies, itself a potential concern for future economic growth in the world’s second-largest economy.

 

The median 12-month target price for Alibaba is $168.96, up 56.1 percent from its current price of $108.27.

 

The highest target is $283.26, which would represent a gain of over 150 percent.

 

A more cautionary projection fills out the low end of the target range, however. The lowest price target places the stock at $65.19, at which price it would lose nearly 40 percent of its current value.

 

As you can see, Alibaba is a mixed bag of positives and negatives. Under more normal circumstances, the company’s recent selloff would have made it a fairly obvious buy based on its historically high levels of growth. Cloud computing, international commerce and a very strong FCF all support an argument for higher share prices within the coming 12 months.

 

On the other hand, the current state of the Chinese economy leaves a considerable amount of doubt around the country’s largest eCommerce company. The Chinese government is targeting 5.5 percent growth this year, a number some analysts say may be too ambitious despite being historically low for the country. Based on this, it doesn’t seem that Alibaba’s slowing retail growth in the Chinese market will be easing much in 2022.

 

Analyst price targets do shed some light on the possible future of the stock. Overall, analysts are bullish on the company. The lower ratings, however, should still give investors a reason to think twice. If double-digit gains are a possibility, it’s important to acknowledge that double-digit losses aren’t impossible.

 

Taken together, the most probable scenario seems to be one in which Alibaba share prices rise over the next 12 months but don’t perform well enough to hit the median analyst price target.

 

Unless consumer spending in China picks back up, it seems unlikely that Alibaba would have an upside of 50 percent over the coming 12 months. Even if it underperforms by rebounding to $125, though, the stock would produce a return of around 15 percent.

 

A more moderate result in this range seems quite feasible, even accounting for slower growth. Although investors would certainly realize larger profits at the median price target, it’s safer to assume that the stock won’t quite reach that level this year. A surprisingly good year could still put Alibaba higher over the next 12 months, but it’s likely best not to buy the stock on that assumption.

 

This leaves us with the question of whether Alibaba is a good stock to buy now. There’s no doubt that the selloff has left the company with a more attractive valuation, and the possibility for decent gains certainly exists. For risk-tolerant investors who believe that Alibaba can break out of its slump, the stock likely represents a decent buy.

 

If you’re more conservative or bearish on China, though, the decision to buy Alibaba stock likely looks quite a bit different. There are still plenty of risks associated with this stock, and shifting government policy in China could wreak havoc with the company’s future.

 

Overall, Alibaba may be a good buy for investors who don’t mind risk, but there are likely better options out there for risk-averse investors looking for more stable returns. This is especially true when the possibility of continued losses is taken into account.

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