What's Wrong with Alibaba?

03/25/2015 12:01 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

Despite higher stocks in China and the US, shares of this Chinese e-commerce site continue to decline, but MoneyShow's Jim Jubak has a strategy for when the stock may turnaround.

Why has Alibaba (BABA) stock been going down? This is the premier Chinese Internet company. Argue that when we talk about Alibaba being the Amazon (AMZN) of China, I think in some ways this is a more profitable business model than Amazon, so maybe what we'd be saying is that Amazon is the Alibaba of the United States.

Anyway, the stock is really down in 2015, about 20% as of March 16 for the year-to-date. Why so weak? Why if it's a good company? The Chinese economy is really not doing that great, but the Chinese stock market has been doing just fine so why is Alibaba down?

I've got one word for you and it's not plastics, it's lockup. When you do an IPO, it's typical to write the IPO so that investors in the early stage, pre-IPO investors can't just dump their shares on the market; they have to wait a while. There was one lockup expiration back in December, but it was a pretty small one, early stage, and insiders could sell about 1% of Alibaba shares. There was another big one on March 18 and that amounted to about 14% of Alibaba shares, so you're looking at something that looks a lot larger a couple days, a lot of trading volume going into there and most of those people are going to sell because they're looking at a really nice, nice profit. There's another big lockup expiration, this one's even bigger, coming in September.

Basically, you've got a stock that's looking at all of these new shares coming to market, has to absorb all these things, and that rather than any weakness in Alibaba or any weakness in the Chinese market I think is what's driving the stock in the short-term.

What should you do? Well, I think this is a chance now to wait until say September and see exactly how much further down the stock goes in lockup. It's a chance to get one of the world's best Internet ecommerce companies cheap if it goes down far enough, but basically, before that, I'd expect the stock to continue to be weak.

I wouldn't necessarily expect a big plunge but it's not a time when you can be looking for a big upside in Alibaba. If you own it, don't get impatient. If you don't own it, be patient because September looks like a very interesting time of year for getting into that stock.

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