Alibaba (NYSE:BABA) is a Chinese multinational technology company specialising in e-commerce, retail, Internet, and technology. Alibaba shares have been on a rollercoaster over the years. A low of $57 was seen in 2015 all the way to a high of over $319 in October of 2020. But since that high, Alibaba’s stock price has dropped 52%, a decline not seen shortly after the IPO in 2014. However, at around $160 a share, we believe this is the bottom for Alibaba.

Chinese stocks

Retail interest in Chinese stocks hit their highest in five years as investors got more clarity on the regulations in place in China regarding the tech sector. These stocks have been badly beaten up in recent months, but China passed a major protection law on Friday which analysts believe will help the tech sector grow.

Alongside this, many China stocks such as JD.com and Baidu also reported positive earnings which has helped the bullish sentiment.

Investors buying in volume

Alibaba was the most purchased stock in the US on Monday, gathering more attention than Covid stocks Pfizer and Moderna., which had received good news. Volume reached nearly 90M on Monday and gained 13% by Tuesday’s trading session from a low of $152.80.

What now for Alibaba shares?

The decline in price for Alibaba has nothing to do with the company, purely the fear from investors regarding possible regulations within China. The relative strength index dropped below 20 for the first time, and the chart looks like that of a company who is going out of business. But earnings show continued growth in recent years ($111B in revenue last year) and there’s no signs to believe this growth will change in the future (Analysts estimate $142B this year). Alibaba is a seriously undervalued stock. Almost too good to be true?

Risks

The obvious risk is that increased regulations from China regarding US -listed companies could hurt the share price further. Investors should keep an eye on the news regarding the Chinese sector. But the risk of serious crackdowns is low, and for that reason, I like where the company is at the moment.

My thoughts

My view is there is a great risk/reward at this time. The reward is a push to previous highs above $320, making a 100% return. This may not be achieved this year, but I think it is possible. Investors are piling in as fear has decreased, so a short term recovery should be seen soon. I think even longer term, this has great potential to slowly increase your portfolio amount. The risk is China. If bad news comes out regarding restrictions, it would be best to cut and come back to it at a later point. But for now, I think the stock has bottomed.

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