1 Growth Stock Down 70% to Buy Right Now
Alibaba (NYSE: BABA) was once considered a promising way to invest in China's growth. It's China's largest e-commerce company and cloud infrastructure provider, and it also operates a logistics service, brick-and-mortar stores, overseas e-commerce marketplaces, digital media platforms, and a video game publishing division.
On Oct. 27, 2020, Alibaba's stock closed at a record high of $306.16. That represented a 350% gain from its IPO price of $68 in just over six years. At the time, investors were impressed by Alibaba's rapid sales growth, soaring profits, and wide moat.
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But today, Alibaba's stock trades 73% lower at about $82. It lost its luster as China's antitrust regulators cracked down on its e-commerce business, China's economy struggled to recover from the pandemic, and aggressive competitors like PDD lured away its customers. However, that pullback might represent a golden buying opportunity for value-seeking investors.
What happened to Alibaba over the past four years?
Alibaba grew rapidly in fiscal 2021 (which ended in March 2021) as the pandemic drove more consumers to shop online and more businesses to beef up their cloud services. But in fiscal 2022, its growth was throttled by tighter government restrictions.
In April 2021 (the first quarter of fiscal 2022), China's antitrust regulators hit Alibaba with a record $2.8 billion fine and barred it from locking in its merchants with exclusive deals, using aggressive promotional discounts, and making unapproved investments. Those restrictions narrowed its moat against PDD, JD.com, and its other competitors. China's broader economic slowdown exacerbated that pressure. That's why its growth rates cooled off significantly in fiscal 2022 and 2023.
|
Metric |
FY 2021 |
FY 2022 |
FY 2023 |
FY 2024 |
1H 2025 |
|---|---|---|---|---|---|
|
Revenue growth |
41% |
19% |
2% |
8% |
5% |
|
Adjusted net income growth |
30% |
(21%) |
4% |
11% |
(9%) |
Data source: Alibaba.
But in fiscal 2024, Alibaba's growth accelerated again as the robust growth of its overseas e-commerce marketplaces (including Lazada in Southeast Asia, Trendyol in Turkey, and its AliExpress cross-border platform) and Cainiao logistics business offset the sluggish growth of its larger Taobao and Tmall marketplaces in China. Its cloud business also stabilized as more of its customers expanded their cloud-driven AI services.
In the first half of fiscal 2025, Alibaba's e-commerce and cloud businesses continued to grow as it restructured its business divisions. However, it walked back its plans to spin off several of its core businesses -- including its cloud and logistics divisions -- with fresh IPOs to further streamline its spending and raise fresh cash.
At the same time, it ramped up its cloud infrastructure investments to support the influx of new AI applications. As a result, its adjusted net income and free cash flow declined in the first half of the year.
For the full year, analysts expect Alibaba's revenue and adjusted earnings to grow 6% and 2%, respectively. For fiscal 2026, they expect its revenue and adjusted earnings to rise 9% and 12%, respectively, as the macro environment warms up again.
Why Alibaba could be a great buy right now
Alibaba's heyday might be over, but its stock looks dirt cheap at less than 9 times forward earnings. Like many other Chinese stocks, its valuation is being compressed by concerns of higher tariffs and a messier trade war under Trump's incoming presidential administration. But Alibaba doesn't generate much revenue in the U.S. -- and its core growth engines are located in China and its other overseas markets.
Alibaba also continues to buy back its shares as its stock trades at these depressed levels. It already bought back $9.9 billion in shares in the first half of fiscal 2025, and it still has $22 billion remaining in its current buyback authorization. Therefore, investors who follow Alibaba's lead and buy the stock today might net some big gains over the next few years.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.
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