Tread Carefully With Alibaba Stock Ahead of Earnings

Stock Market

After making a double-digit move lower in October, don’t expect things to calm down with Alibaba Group (NYSE:BABA) stock this month. On Nov. 17, the Chinese e-commerce giant will report results for the preceding quarter, ending Sept. 30.

In addition, investors will be keeping an eye on Alibaba’s results for “Singles Today,” which was Nov. 11. China’s answer to “Black Friday,” Singles Day is the biggest shopping day for the company’s online retail platforms.

So, with these two major events forthcoming, is it time to buy BABA, after its recent pullback? Not so fast!

Even if the company reports strong quarterly and/or Singles Day numbers, at best this may have little positive impact on the stock’s near-term performance. Add in existing issues, which are likely to continue challenging a recovery, and there’s little reason to rush into a position.

BABA Alibaba Group $70.77

Why BABA Stock Could Slide on Upcoming News

Few are expecting Alibaba to set the world on fire with its sales figures for Singles Day 2022. With China’s economic slowdown and “zero-Covid” policy having a severe impact on consumer sentiment in the world’s second-largest economy, analysts forecast Alibaba’s Singles Day sales volume growth to be the weakest on record.

However, even if it beats expectations, this may not spark a BABA stock rally. According to Barron’s, strong Singles Day results have historically done little to move the needle for shares. If that’s bad enough, the same “limited upside” dynamic is at play with next Thursday’s quarterly earnings release.

Sell-side analysts have upped their respective earnings forecasts. Alibaba may be primed to deliver strong numbers for the September quarter. Still, even if revenue and earnings come in better than expected, this too may fail to give Alibaba shares much of a post-earnings boost.

With the stock still on shaky ground as a result of home market headwinds, investors could use any negative aspect of this earnings release as an excuse to sell. While Alibaba suspended guidance earlier this year, any forward-looking statements made on the post-earnings conference call could suggest that further challenges lie ahead for this company.

Don’t Expect Alibaba to Quickly Turn a Corner

Put simply, forget about BABA stock making a sharp move higher in the near term. It may prove difficult for this hard-hit Chinese stock to make a major move higher in the coming months, or even over the next year.

Although China has eased on some of its “zero-Covid” restrictions, it’s debatable whether this means that China’s version of the U.S. post-Covid “reopening” is just around the corner. If such a similarly-rapid “reopening” trend fails to emerge, the growth challenges Alibaba has faced this year could continue.

More importantly, there’s little end in sight to the political uncertainty that has shifted sentiment for BABA stock from bullish to bearish over the past two years. The high jurisdiction risk with this stock is why you can buy it at what is a seemingly-low valuation. That is, shares today trade for only 9.7 times forecasted earnings for the current fiscal year, ending March 2023.

Barring a policy pivot from Chinese President Xi Xinping (who recently secured a third term), this valuation discount will likely persist. Buying this stock, in expectation that it will close this valuation gap with U.S. counterparts (i.e. major FAANG stocks) is at best wishful thinking.

Bottom Line on BABA

The aforementioned results releases are not likely to change this stock’s current trajectory. Don’t expect this stock, in the mid-$70s per share today, to make a fast move back to triple-digit prices. Instead, shares could re-test their lows, or hit new lows, over the next twelve months.

That said, the opportunity to enter or add to a position in BABA could open up down the road. After all, it’s not as if all the issues affecting shares at present are going to clear up in a day.

When signs emerge that the situation here is truly improving, there will be plenty of time to initiate and/or increase a position and ride the recovery. However, as now is not that time, stay on the sidelines with BABA stock.

BABA stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in BABA. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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