Alibaba: Despite Regulatory Tussles Shares Are Undervalued, Says Analyst
2020 is gone and with 2021 at play, it’s out with the old and in with the new. However, for Alibaba (BABA) the well-worn axiom could yet have a whole new meaning, and might be interpreted as out with the old rules, in with the new regulations.
Shares had been under pressure in last year’s final stretch as the Chinese government announced it is investigating the e-commerce giant based on allegations the company is attempting to monopolize the market by coercing merchants to sign exclusivity agreements – thereby stifling competition.
The latest move followed an earlier crackdown, when the Chinese government put the brakes on Ant Financial’s (Alibaba’s sister company) planned record-breaking November IPO.
The regulators have now made a list of requirements which Ant must follow, so the IPO can get the go ahead. These include improving transactions' transparency and encouraging fair competition, setting up a regulated holding company for Ant’s financial services, procuring the required licenses for the individual credit rating business, polishing up on company governance, and a requirement for the asset securitization businesses to correct irregularities.
Oppenheimer analyst Jason Helfstein says the list suggests the “IPO seems unlikely in 2021.”
“It will likely take Ant some time to meet all five regulatory requirements (especially reserve capital requirement) and another one year or more to get ready for an IPO again,” the 5-star analyst opined. “In our view, Ant will focus on Digital Payments, while the growth of its consumer credit business (+59% y/y in 1H:20) should decelerate given the new capital requirement.”
As a result, Helfstein lowered Ant’s valuation from $200 billion to $150 billion.
Overall, the analyst believes BABA shares are “undervalued.” The analyst reiterates an Outperform (i.e. Buy) rating on BABA along with a $320 price target. Investors stand to pocket a 40% gain should the analyst’s thesis play out. (To watch Helfstein’s track record, click here)
The Oppenheimer analyst is not alone in claiming BABA remains undervalued. The overall sentiment is decidedly bullish; all current ratings - 19, in total - consider the stock a Buy. To this end, BABA's Strong Buy consensus rating is backed by a $342.07 average price target, suggesting gains of 50% over the next 12 months. (See Alibaba stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
