Chinese shares have been struggling for some time, particularly those with listings in the US. This is mainly due to the geopolitical tensions between China and the US, which has led to the fear that many such shares will be delisted from the US. With further concerns around Beijing’s attitude to Russia’s invasion of Ukraine, there’s also the prospect of further US-China tensions. And the recent surge of Covid cases in the country has also weighed on many shares. As such, with Alibaba (NYSE: BABA) and NIO (NYSE: NIO) at their lowest price for a very long time, should I buy either of these stocks?
NIO stock: growth in the EV market?
NIO managed to climb in 2020 as demand for electric vehicles soared. This has allowed the firm to raise both delivery volumes and revenues. For example, in the third quarter of 2021, it saw revenues of over $1.5bn, a 116% year-on-year increase. Total deliveries also managed to total 24,439, another 100% year-on-year rise. Clearly, this demonstrates that the firm is operating well. After the recent share price crash, with NIO down over 60% in a year, it also gives the EV maker a price-to-sales ratio of around just five, far lower than its previous valuations.
However, there are many risks that are outside of the company’s control. For instance, there’s that possibility that NIO could be delisted from the US, and this will prevent it from raising more money on the US market. It has started to trade on the Hong Kong market, a route which seems forced rather than desired. Indeed, the company chose a listing path that didn’t raise any new money.
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There’s plenty of competition in the Chinese EV market too. For example, in February, NIO ranked eighth for EV vehicles sold there and this suggests that it may find it hard to reach profitability. As such, while I feel the current share price is tempting, there are too many risks for me. This is a Chinese share I’ll be avoiding for now.
Alibaba stock: a well-established Chinese share
Alibaba (NYSE: BABA) has also been crashing recently, as the worries surrounding the delisting issue continue. The firm has seen slowing growth, another factor that has led to its recent decline. In fact, Alibaba stock is also down 60% over the past year, currently priced at under $80.
But while the risks around investing in Chinese shares remain, Alibaba’s financials suggest to me that it’s far too cheap. In fact, it has not been this low since 2016, a time when revenues only totalled around $15bn. In the trailing 12 months, it has generated revenues of over $130bn. This shows that the current share price is out of touch with Alibaba’s performance, and fears around China may be overstated.
As Covid cases rise there, I also feel that this could benefit the e-commerce company. Therefore, if profits can continue to grow, it seems to me that the Alibaba share price should be able to recover. This means that I’m very tempted to disregard the risks of investing in Chinese shares and open a small position in Alibaba. In any case, I prefer Alibaba to NIO.
