Alibaba’s Sole Bear Analyst Considers Stock a Valuation Trap Amid Mounting Regulatory Risks

By Benzinga
December 15, 2021 Updated: December 15, 2021

Manuel Muhl, who downgraded Alibaba Group Holding Ltd. to a sell in late July before its 39 percent plunge, said the stock remains a valuation trap, SCMP reports.

Alibaba’s intrinsic value appeal is not adequately reflected in the stock price as China’s regulatory risks and U.S. delisting pressures continue to mount.

“The fear that the ADRs will be delisted, the worry that more regulatory pressure is on the way, have led to those massive sell-offs, and right now it is not possible to find an adequate risk premium for the sector,” he said.

Alibaba lost 39 percent in NYSE since Muhl cut his rating to a sell on July 26, precipitating a $220 billion loss of market value. Muhl remains the only analyst with a sell rating among 62 tracked by Bloomberg. He lowered his price target to $130 on November 19.

While Alibaba’s stock is still expected to be plagued by wild price swings, the stock is worthy of allocations, in the long run, cited Citic Securities. The brokerage added that its global expansion, innovation, and cloud-computing business offer new growth drivers. The firm’s Asia and China High Conviction funds invested more than 4 percent of their net assets in Hong Kong-listed Alibaba shares on September 30.

Two possible scenarios would need to play out for DZ Bank’s Muhl to alter his sell recommendation.

Firstly, regulators have to be satisfied and stop introducing new rules. Secondly, “the sell-off continues to a point where the mismatch between the intrinsic valuation and the stock price becomes so dramatic that the stock can withstand any more negative news flow,” he added.

According to Thornburg Investment Management, Chinese tech companies still need to sit down with regulatory authorities to draw a clear boundary that will define their business scopes.

By Anusuya Lahiri

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