Alibaba stock surged late Tuesday and were advancing again on Wednesday as investors appeared to celebrate a report that Jack Ma—the company’s famous co-founder and former CEO—has been among insiders buying up shares. U.S. investors might want ot be more cautious.
It would be an endorsement of Alibaba’s growth potential, but Ma could be falling into a value trap that has caught many other investors in recent years.
Ma has been buying up shares in Alibaba, the New York Times reported on Tuesday, citing an anonymous source, with the former CEO scooping up $50 million worth of the company’s Hong Kong-traded stock in the last quarter. Alibaba chairman Joe Tsai has also been buying the stock, the report said, with regulatory filings confirming that his family office bought almost $152 million of the U.S.-traded shares last quarter.
Both men, Alibaba co-founders, are already sizable shareholders, but news of the fresh buying gave Alibaba a boost, with the stock finishing 7.9% higher on Tuesday and advancing a further 1.8% in U.S. premarket trading on Wednesday.
Shares in Alibaba have been beaten down over the past couple of years, with the stock down some 75% from a late-2020 peak. The company was at the forefront of a tech sector crackdown by Chinese regulators, complicated by pressures from Washington, D.C., too—with a hoped-for rebound in 2023 scuttled by a slowdown in China’s economy that weakened consumers. Symbolically, Alibaba recently lost its crown as the most valuable Chinese online retailer to PDD, the owner of Pinduoduo and Temu, which has found great success as consumers flock to its budget-oriented platforms.
Jack Ma’s reported double-down on Alibaba stock is, indeed, a vote of confidence—but the Chinese billionaire could be falling into a value trap that has become all-too familiar to the company’s shareholders.
Alibaba, by most financial metrics, has looked screamingly cheap for years, but the stock just hasn’t been able to stage a recovery, despite fairly impressive results from management in recent quarters.
Wall Street still likes the stock. Analysts surveyed by FactSet overwhelmingly rate it at Buy, with only one recorded Sell rating. The consensus target price implies an upside of more than 50% from current levels.
The stock looks attractive. But many investors—and the late great Charlie Munger was one—have already been waiting years for bullish calls to play out.
Buy it at your own risk.
