What are the Benefits of Buying Alibaba Stock?

    What are the Benefits of Buying Alibaba Stock? As Alibaba's  9988 (HKG) HK$144,30 -4,10 (-%2,76) shares fell last year, there are a few risks to consider before purchasing. Investors love the upward movement of Chinese companies, as they operate in the world's most populous country and the second richest economy. However, it is important to remember that China's political risks can affect companies and make Alibaba demanding attention from investors. That's why it fell almost 40% last year. Is it worth buying shares in this downturn? The following are the points to be examined:

• Alibaba has long been one of the expensive stocks

A stock's fall in price may be a reason to buy, but this can easily be wrong because there are many reasons why a stock's price may change. Let's compare Alibaba with Amazon AMZN (NASDAQ) $3.405,22 -10,78 (-%0,32), which has a similar business model. BABA has seen revenue increase by an average of 48% per year over the past five years, while Amazon has increased by 29%. Despite all these data, if Alibaba's P/S ratio is followed since 2015, it can be seen that it is on the downward track. This decline in Alibaba shares is not accidental, but because it is in a multi-year downward pattern as it is overvalued.

• Political pressures complicate valuation

Last year was very difficult for Alibaba. Jack Ma, the founder of Alibaba, is against China's banking regulations and making opposing comments. The blocking of Ant Group, another company based in Ma, which owns China's largest digital payment platform (Alipay), made these comments.

What are the Benefits of Buying Alibaba Stock?

Investors should consider that the Chinese government has the authority to interfere in their business and the activities of companies. China's largest companies, including Alibaba, have pledged to support these efforts, as Chinese President Xi Jinping stressed the need to increase incomes for the poor and middle class while "regulating" the excess wealth. These politically sensitive events can pose problems for investors.

• How high should you look?

When things go well in the long run, investors need to consider the potential upside. Analysts expect Alibaba to increase revenue by 20% in 2022, but it may take a long time to see significant share price growth if political questions persist.

It is necessary to consider the opportunity cost of investment.

Perhaps Alibaba will continue to grow fast enough to generate strong investor returns despite these challenges.  

Source: The Motley Fool

 

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