ESG Risk, Poor Valuation Add to Woes By TipRanks

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© Reuters. Alibaba: ESG Risk, Poor Valuation Add to Woes

Alibaba (NYSE:) is often considered the Amazon (NASDAQ:) of China.

The company’s platform provides marketing reach for merchants, brands, and other businesses. Alibaba’s four segments include Core Commerce, Cloud Computing, Digital Media & Entertainment, and Innovative Initiatives.

I am bearish on the stock. (See BABA stock charts on TipRanks)

Performance

Alibaba stock is down by 34% year-to-date, after it was widely anticipated that it would be one of the top-performing tech stocks in 2021.

As many might know, China’s faced heavy systemic risk over the past quarter due to the Chinese Communist Party’s new hard-line policies aimed at big tech.

The company has since experienced a period of distress, with the latest event being the forced dismantling of AliPay.

ESG and Alibaba ADR

Let’s look at the company’s listing on the New York Stock Exchange and its ESG implications.

Alibaba’s American Depositary Receipts listed on the New York Stock Exchange are shell companies, and aren’t in any way part of Alibaba’s core business. The Security and Exchange Commission has questioned Alibaba’s ADR financial reporting quality, and has threatened to de-list the stock if it can’t produce the required disclosure quality needed.

We live in a world where ESG is of the utmost importance in investment analysis. ESG stands for Environmental, Governance, and Social practices. Its importance has been very much overlooked; high-scoring ESG stocks have actually provided superior risk-return characteristics than lower-scoring ESG stocks over the past decade.

Alibaba has failed to meet governance demands, and rising tensions between the U.S. and China mean that it’s most likely set to fail on a social front as well.

Valuation

Alibaba as a stock isn’t that impressive if we look at a relative comparison. The stock’s trailing price-to-sales and EV-to-sales ratios exceed its sector benchmarks by 177.7% and 108.9%.

Its EBITDA growth is 94.8% lower than its sector’s, and 90.5% lower than its five-year average. Alibaba has also failed to match its 7% earnings yield for the past five-years.

Wall Street’s Take

Wall Street thinks Alibaba is a Strong Buy, with an average price target of $265.09. There have been 23 Buy ratings, one hold rating, and one sell rating assigned in the past three months.

Bottom Line

Many have subconsciously thought of Alibaba as the next Amazon, but the reality is that the two stocks trade in different climates.

Disclosure: At the time of publication, Steve Gray Booyens had a short position in BABA.

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