Will you invest with fear, or with guts and glory? That’s the billion-dollar question facing each and every Alibaba (NYSE:BABA) shareholder now as BABA stock continues to drift downward with no mercy.
I can fully understand why some investors might want to avoid Alibaba and Chinese businesses altogether. It’s not about disliking any particular nation.
Rather, the cautious feeling is tied to the Chinese government’s harsh crackdowns on certain businesses. Technology-related companies seem to have been in China’s crosshairs lately, it seems.
On the other hand, with every problem in the markets comes an opportunity. If you’re not willing to buy on peak fear, then you might miss out on some of the glorious upside that’s (hopefully) ahead.
A Closer Look at BABA Stock
The not-so-fun decline in BABA stock started after it topped out at around $320 on Oct. 27, 2020. Since then, it’s been a prolonged downhill slide.
July of 2021 was the first red flag as Alibaba shares fell below the key $200 level. That was a sign to cut and run, as the share price fell into the $170s by early September.
By the middle of the month, BABA stock was barely above $160. How much longer can this carnage last?
There’s no way to answer that question with certainty, I’m afraid. However, we can assess whether Alibaba shares are a bargain here.
Put it to you this way: Alibaba’s trailing 12-month price-to-earnings ratio of 19.27 isn’t too bad at all. In a market full of overpriced stocks, perhaps there’s an irresistible window of opportunity here.
Going Along with the Program
You may recall the time in April, when the Chinese government fined Alibaba a whopping 18.2 billion yuan ($2.8 billion) for allegedly anti-competitive practices.
That’s harsh, but the company seemed to take the fine in stride.
“Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development,” the company said at the time.
More recently, it was reported that Alibaba pledged to invest 100 billion yuan ($15.5 billion) by 2025 in support of Beijing’s “common prosperity” initiative.
Was this basically just a way to assuage Chinese President Xi Xinping? Yes, probably.
It’s a wise move, though. Smart businesses don’t try to battle any government – and particularly not the ultra-strict Chinese government.
There’s also the possibility, though, that China might impose an effective tax rate of 20% on Alibaba during the September quarter.
That’s quite a hike from the 8% tax rate from a year ago. So, stay tuned to see if this actually pans out – and how Alibaba adjusts its business model, if necessary.
A Deep Route into Self-Driving Cars
We can see the concerns with Alibaba, but let’s not forget that this is a massive company that has a huge presence in China.
Besides, Alibaba is a forward-thinking business that has gone far beyond e-commerce.
Here’s an example of what I’m talking about. Not long ago, self-driving car start-up DeepRoute.ai revealed that Alibaba Group and other venture capital businesses had invested $300 million in the company.
Deeproute.ai operates a fleet of self-driving taxis,and also develops the software and hardware brains that enable autonomous vehicles to navigate their surroundings.
With this investment, Alibaba could soon have a financial interest in a veritable army of autonomous taxis.
According to the company, DeepRoute.ai “aims to grow its robotaxi fleet to more than 150 by the end of 2021, with their owned vehicles making up approximately 100 of the total.”
The Bottom Line
The price action of BABA stock over the past half-year has been pretty scary, no doubt.
Yet, it’s peak fear that provides buying opportunities and, maybe, a chance to hold a great stock for years.
Sure, the Chinese government might still cause problems for Alibaba.
The worst of it may be over, though, and Alibaba still remains a giant business with bold, innovative spirit.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.