It Could Be Time to Say ‘Open Sesame’ to Alibaba

Alibaba Group Holding Ltd. (

BABA, Financial) is closing the year with a paroxysm of fear and a sharp bounce. While it is still too early to tell for sure, this looks like a real reversal in sentiment. Dec. 29 was the last day of the year that stragglers in the tax loss crowd could sell their shares and claim a tax loss. The stock has bounced back sharply since then.

On Thursday, shares of the Chinese e-commerce company were up 10.58% at $123.95.

The stock is ridiculously undervalued. With a forward price-earnings ratio of 14.59 and a three-year Ebitda compound annual growth rate of 16.8%, it is one of the largest and fastest-growing stocks in the world.

GuruFocus valuation panel is flashing an excellent value:

As is the GF Value Line, which indicates the stock is significantly undervalued currently based on historical ratios, an adjustment for past returns and future earnings projections

It cannot be argued that Alibaba’s troubles are not well known. While the Chinese Communist Party, common prosperity, Jack Ma and a litany of other factors are potential roadblocks to the company’s success, I don’t believe for a second that China’s leaders are stupid enough to destroy the greatest business the country has ever produced.

Charlie Munger (Trades, Portfolio) and Bill Miller appear to agree based on the significantly holdings they have in the stock. They know you have to buy fear and go against the crowd.

Regardless, things are looking up. The Chinese government is normalizing its variable interest entity structure. As I discussed previously, the China Securities Regulatory Commission recenlty released proposed rules for domestic companies if they want to list overseas. This is the first time China has officially sanctioned the VIE corporate structure. As a result, fear of Alibaba delisting from U.S. exchanges has decreased. Additionally, the Biden administration is probably not too keen to escalate the economic war with China given the rise of inflation. China is a massive deflationary force and a sharp increase in the prices of imported manufactured goods will not be politically palatable.

As such, now could be a good time to step up and say “open sesame” to Alibaba.