Alibaba Stock Gets a Target Price Cut. Here’s Why It’s Still a Buy.

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Investors are buying into the big drop in Alibaba’s stock price.

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Greg Baker / AFP via Getty Images

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Citigroup analysts have lowered their target price on Alibaba stock — but they still see the Chinese tech giant as attractive to investors.

This is largely due to valuations. After all, shares of Alibaba (ticker: BABA) lost nearly 50% of their value in 2021 amid regulatory pressures and concerns about slowing growth. At this point, Citi analyst Alice Yap said in a report broadcast on Monday, the current price is “an attractive entry for investors looking to establish new positions.”

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Alibaba is now much cheaper to buy, this is reflected in the sharp drop in the share price among investors to buy. Alibaba’s US-listed stock has climbed nearly 8% so far this year, and shares were up about 1% in premarket trading on Monday.

Yap’s view has been shared by several analysts, including Danny Law of Guotai Junan Securities, one of China’s largest investment banks. the law told baron’s That valuation was the first reason investors were buying Alibaba stock of late, followed by the actions of high-profile investors and a clearing regulatory picture, among other factors.

But there are many reasons to be cautious about Alibaba.

While Yap reiterated its buy rating on the shares, Citi lowered its target price on the stock from $234 to $216. This still indicates an up 66% from Friday’s close. And that leaves the city on the more bullish side; Among the dozens of analysts recorded by FactSet, the average target price on Alibaba is $194.68.

Yap cited “challenging macros and further soft consumption demand” as the main reason behind the target price trim, placing Citi’s outlook in line with analysts at investment banking firm Benchmark as well as JPMorgan.

Data shows Chinese online consumption is slowing, and retail sales declined sharply in November. This could hit Alibaba harder than peers, as the conglomerate relies more on discretionary spending on the likes of cosmetics. Yap also cited slower revenue growth from Alibaba’s blockbuster Singles Day sales event as part of a broader trend.

Slow consumption is bad for customer management revenue (CMR), which comes from services like marketing on Alibaba’s platform and is an important source of sales for the company. Yap joins others in noticing a more subdued growth in CMR in the current quarter.

“We believe that overall demand sentiment and market conditions will remain soft in the near term,” Yap said. However, analysts are upbeat about the restructuring to better integrate the Taobao and Tmall platforms: “We are optimistic on the potential growth it could bring if the market improves.”

Write to Jack Denton at [email protected]

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