Chinese stocks bounce back
on March 22, the stock price of Alibaba Holding Group rocketed as much as 13% after the company made a fresh announcement on upping the value of its proposed buyback of shares from holders. this put the shares at their highest in about a month, arresting a slump on the back of slowing growth projections and fears arising from a fresh spate of Covid-19 cases in China. at present, Alibaba sits around $470 billion below its peak valuation at the time when Beijing’s crackdown on internet companies began.
does that mean it is a bargain buy?
Alibaba’s is merely the largest among similar schemes being employed by many of its peers. the Chinese tech industry by and large seems to have adopted share buybacks as their weapon of choice to arrest the record slides witnessed in their stock prices over the past couple of years. Xiaomi recently announced a $1.3 billion buyback of its own, and JD.com announced its buyback worth $3 billion back in December. Tencent Music announced a $1 billion buyback a year ago. none of which compare to Alibaba’s projected $25 billion worth of buybacks over the next two years.
however, these will only serve to act as short time triggers for stockholders to cling on to their shares. in the bigger picture, Alibaba’s growth prospects have taken a severe hit. its total forward revenue growth is expected to clock a 5-year average of 13.1%, compared to its historical 5-year growth of 48.3%. and while it still dominates the Chinese market, competition is fast growing, especially since the authorities deemed it necessary for a healthy market.
at present, Alibaba’s stock price sits around 67% below its peak. at a time like this, a company needs robust growth in order to rebound or at least to improve its margins. however, as shown in the research article above, Alibaba’s growth in the near future will not nearly be comparable to its near past while its EBITDA (profit) is also dropping at the moment. Alibaba’s spokesperson has further outlined that the company’s focus is now on retaining customers rather than acquiring new ones.
in such a scenario, the advantage perhaps lies with the challenger mopping up customers dropping from the market leader. if one is interested in the Chinese internet companies sector, it might be time to look at JD.com or perhaps even Bilibili?