The Alibaba (NYSE: BABA) share price has tanked this year. Since the beginning of 2021, shares in the Chinese e-commerce group have fallen by nearly 31%. Over the past 12 months, the stock is off 43%.
Some investors believe this could be a great opportunity. The company is one of the largest technology groups globally, and virtually dominates China’s e-commerce market. As such, some investors believe this could be a great time to snap up shares in the business at a discounted price.
But I’m not so sure. I have been weighing up the pros and cons of investing in the business over the past few days.
Is the Alibaba share price on offer?
The pros of investing in the business at current levels are evident. The company has a significant market share and economies of scale in China, the world’s second-largest economy. As the economy continues to expand and the wealth of the Chinese people grows, activity on Alibaba’s e-commerce platforms should follow suit.
Put simply, this could be a great way to invest in the Chinese economy, which has experienced breakneck growth over the past few decades.
However, Alibaba is also under threat. Shares in the firm started to decline last year after the company’s founder, Jack Ma, was reprimanded by Chinese regulators. Since then, regulators have only intensified their attack on technology groups. In April, authorities levied a $2.8bn fine on the business for anti-monopoly violations.
Since then, regulators have clamped down on its peers, including Tencent and DiDi.
Tencent was ordered to restrict access to its games for those under 18s while ride-sharing group DiDi had to pull its app from stores after regulators raised concerns about its data security.
It seems to me that investors are worried about what could happen next. And so am I. It’s impossible to say if the regulatory crackdown is over or if it will ever end.
Uncertainty prevails
This makes it very difficult for me to place a value on the Alibaba share price. One of the best ways to value a business is to calculate how much profit it will generate over the next few years.
With Alibaba, that’s virtually impossible today, considering the cloud of uncertainty hanging over the business and the Chinese tech sector. Another multi-billion dollar fine could be just around the corner.
Policymakers have also asked companies like Alibaba and Tencent to donate more to “common prosperity” projects.
To that end, Tencent recently set aside $7.7bn of its profits for a common prosperity fund. This is money that’s going back into the community and not to shareholders. Once again, this only confuses the valuation process.
Considering all of the above, while I believe Alibaba could be a great way to invest in China’s continued growth and technological development, it’s impossible for me to value the business.
That makes the stock uninvestable, in my opinion, and I won’t be buying after its recent declines.
