If you bought shares of Meta Platforms in late 2022, you could have more than doubled, possibly tripled, your investment. Buying a solid stock when the markets are overly bearish on it can prove to be an excellent move in the long run. In Meta's case, the recovery happened incredibly quickly.
One stock that could have the potential to generate similar returns is Alibaba Group Holding (BABA 0.59%). The tech stock has been struggling in recent years as investors have grown concerned about the impact the Chinese government has on the business -- it has a stake in over a dozen of Alibaba's entities.
While it's a risk investors shouldn't gloss over, it's also hard to underestimate the size and prominence of Alibaba in the Chinese tech and e-commerce markets, and its attractive long-term growth prospects. Here's a closer look at why this stock could be worth taking a chance on today.
Alibaba's business is diverse and there's more growth on the horizon
A big concern about Alibaba's business lately was its lack of growth. There has been an increase in competition in the Chinese e-commerce market as the emergence of shopping platform Temu, which PDD Holdings owns, has put pressure on retailers all over the world who are competing with its low-priced items. But even amid those challenges, Alibaba's business was fairly resilient.
In the company's most recent earnings report, for the last three months of 2023, revenue from online shopping platforms Taobao and Tmall rose by 2%. And while e-commerce is Alibaba's core business, the company's overall operations are diverse, and that is what helps make this a great investment.
For example, Alibaba's cloud intelligence group accounts for more than 10% of segmented revenue and its Cainiao Smart Logistics Network isn't far behind either, representing just under 9% of sales this past quarter.
While Alibaba has faced headwinds due to a slowing Chinese economy, there's still plenty of growth potential ahead. Alibaba co-founder Joe Tsai believes that the level of e-commerce penetration in China will grow to more than 40% over the next five years; currently it's around 30%.
Alibaba has the benefit of already being a large, established player in the Chinese e-commerce market, which can put it in an excellent position to benefit from more growth in the sector.
The stock's valuation is incredibly attractive
In 2022, amid a sharp sell-off, Meta's stock fell so much that at one point its price-to-earnings (P/E) multiple was barely above 8. Today, the stock trades at more than 32 times its profits. Alibaba's stock, however, remains discounted, with a P/E ratio of just under 14. Over the past 12 months, shares of Alibaba are down 15% and it's possible the stock can fall even further, depending on how relations between China and the U.S. progress, and how strong the Chinese market proves to be.
Investors are getting the stock at a discount because of these unknowns and the geopolitical risk that comes with an investment in Alibaba. But for such a large tech player in the international and Chinese e-commerce markets, there's a lot of value here.
Should you invest in Alibaba stock?
Alibaba looks like a great buy at its current valuation and it has the potential to be one of the better growth stocks to buy right now. The Chinese market isn't done growing and while the Chinese government's influence on the company is a concern, it shouldn't be enough of a worry to deter long-term investors.
The potential upside for Alibaba's stock could be significant. It was trading at around $200 in 2020 and in the long run, it wouldn't be surprising for it to get back to those levels again.
