Sprawling Chinese tech company Alibaba Group(NYSE: BABA) hasn't been all that mighty on the U.S. stock market of late. The company's stock has underperformed market indexes significantly and continues to suffer as the market shows a lack of interest in Chinese titles.
That presents an opportunity to buy it at a discount, in the view of a Morgan Stanley pundit. While he's not exactly bullish on the company, he does feel its share price could rise by almost 19% over the next 12 months or so.
Share buyback bonanza
The analyst behind the somewhat askew recommendation/price target combination is the investment bank's Gary Yu. In early April, in a new research note, he reiterated his equal weight (read: hold) tag on Alibaba stock and $85 per American Depositary Share (ADS) price target. The latter is nearly 19% higher than the Asian tech giant's most recent closing ADS price.
The reason for the update was the company's latest news about share buybacks. It revealed that it repurchased 524 million shares of its ordinary stock in the first quarter of calendar 2024. For this, it spent $4.8 billion. In his note, Yu wrote that this is a "meaningful" increase over Alibaba's average quarterly spend on buybacks recently (that average was $2.6 billion).
He added that the "Last 12-month buyback ($12.5 billion) plus dividend ($2.5 billion for fiscal 2023) would imply 8% yield," on the company's stock.
Difficult past, uncertain future
Is that enough reason to buy the stock, though?
Alibaba has had a rough few years, with the pandemic dragging out in China and the country's government making clear attempts to curb the company's power and influence. Meanwhile, management has (so far unrealized) plans to split into six separate businesses, so its future is rather hazy these days.
Despite Yu's opinion about a price upgrade, this stock isn't sufficiently compelling to be a buy, in my opinion.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
