Chinese stocks have traded volatilely in 2024, dependent on the broader economy. These companies have essentially been trading up and down in tandem with announcements regarding economic stimulus measures.
There was renewed optimism toward Chinese stocks earlier this week after the Communist Party’s Politburo teased a "more proactive fiscal policy and an appropriately loose monetary policy." The readout also talked about “enhancing and refining the policy toolkit, [and] strengthening extraordinary counter-cyclical adjustments.” But the announcement turned out to be a “sell the news” event and Chinese stocks closed in the red on Tuesday.
The skepticism is not unwarranted, and the country’s much-awaited $1.4 trillion stimulus package, which it announced last month, was a disappointment. The announcement largely detailed a debt swap for local governments. November trade data showed an unexpected dip in imports – testimony to the fact that China needs to do a lot more to achieve the growth targets that it has set.
Meanwhile, China has been working to boost domestic consumption. Names like Alibaba (BABA) stand to benefit from such initiatives. But will they be enough to take BABA stock back to highs near $100?
Alibaba Stock 2025 Forecast
Of the 18 analysts covering Alibaba, 16 rate it as a “Strong Buy” and 2 as a “Hold” or some equivalent. The stock’s mean target price of $120.76 is 34% higher than Dec. 10 closing price, while its Street-high target price of $145 is over 61% higher.
Analysts are modeling a 9.5% rise in Alibaba’s earnings per share (EPS) in fiscal 2025, which will end in March 2025. They then expect EPS to rise 11% in fiscal 2026.
Alibaba is generating strong cash flows which it is distributing to shareholders. Last year, it initiated dividends and has already repurchased $10 billion of its shares in the first half of the current fiscal year. These repurchases would buoy Alibaba’s EPS and look perfectly timed considering where the stock has been trading this year. The company still had a $22 billion repurchase authorization remaining at the end of September and might continue its buyback spree in 2025.
What Should Alibaba Investors Watch in 2025
China is expected to announce more stimulus measures next year as the country tries to mitigate the deepening slowdown in its economy. The measures are expected to support consumption which should aid Alibaba’s e-commerce business. The company’s cloud business continues to benefit from growing artificial intelligence (AI) spending in China. However, Donald Trump’s return to the White House is a near-term risk for Chinese shares as the president-elect has vowed to increase the tariffs on imports from China.
From a valuation standpoint, BABA looks attractive and trades at less than 10x expected earnings over the next 12 months. While the company faces both macroeconomic and company-specific issues, the risk-reward looks quite attractive at these price levels and I expect BABA stock to rise to $100 sooner than later.
BABA Stock Long-Term Forecast
Over the long term, Alibaba is a play on the business restructuring – potentially listing its six business segments separately – which would unlock value. While that process is on hold for now due to U.S. chip export restrictions, over the long term, Alibaba is expected to return to its plans.
An eventual listing of its fintech subsidiary Ant Financial will also help unlock value. While the company might not be able to command the kind of valuations it was seeking in its abruptly stalled 2020 IPO, the business has stabilized over the last year which should help.
BABA is also an AI play, and while Chinese tech companies haven’t received the same kind of “AI respect” as their U.S. counterparts, they might see some buying interest from bargain hunters. Overall, I continue to remain bullish on BABA and see the stock delivering decent returns over the next couple of years led by both earnings growth and expansion of its valuation multiples.
