Alibaba Just Flashed Green, Very Green

Key Points

• Key headwinds from recent years continue to dissipate, with last week's news perhaps the biggest. 
• Even with the recent rally, shares remain comparatively cheap.
• They're well-supported technically and on the verge of crossing the $100 mark. 

After trading sideways in a tight range for more than a year, the stars are finally aligning once more for Alibaba Group Holding Ltd NYSE: BABA stock. Shares of the Chinese e-commerce and cloud computing giant had to endure one of the more publicized slides from highs over the past two years, with them coming with a few cents of an all-time low as recently as last October.

But with many of the key headwinds of recent years continuing to dissipate, including a major announcement last week, there's possibly never been a better time to get involved. 

For starters, Friday saw what many on Wall Street are calling the end of the Chinese crackdown on tech, as Ant Group, of which Alibaba is a 33% owner, was fined close to $1 billion by the Beijing authorities there.

This was seen as the closing of a multi-year chapter which saw increased antitrust scrutiny weigh on what had been some of the best-performing equities out there. JPMorgan's Alex Yao said with the news that "we believe the fines indicate that the rectification of large fintech platforms has come to an end," and we're inclined to agree. 

Share Repurchase

Following the news, Ant Group, which was founded by Alibaba's Jack Ma, announced they would be kicking off a major stock repurchase scheme. This is one of the most bullish signs a company can give to the market and effectively means they believe shares are trading so far below the fair value that the best use of available capital is to simply invest in themselves. 

It's been a good week for Alibaba shares as a result, with the stock gapping up on Monday and continuing to rally through this morning's open. At the time of writing, shares were up 13% from where they closed last Thursday, a move that's been mimicked in many of Alibaba's Chinese tech peers. 

If this is indeed the beginning of the end of China's crackdown on its tech sector, then it's another reason for the bulls to be cheering. Other headwinds that are also starting to break up include US-Chinese geopolitical tensions, which have received much attention in recent weeks.

The special presidential envoy for climate, John Kerry, as well as Secretary of State Anthony Blinken and Treasury Secretary Janet Yellon, have all recently made high-profile trips to Beijing, as has Tesla Inc's NASDAQ: TSLA Elon Musk. The feedback from these meetings has been positive, and there are reports of a noticeable defrosting in relations over the past few months. 

The delisting concerns which also plagued US-listed Chinese stocks have, for the most part, also been addressed. At the end of last year, US authorities finally received what was called "historic" access to key audit data. It was the lack of this and the associated concerns which had caused many investors and funds to turn their backs on Chinese stocks. 

Still Cheap

And the best news for those of us considering getting involved now is that there are more tailwinds than headwinds? Alibaba is still cheap comparatively. The stock is still trading around where it IPO'd in 2014, and its price-to-earnings (PE) ratio is only 25. Compare that to its closest American peer, Amazon.com Inc NASDAQ: AMZN, whose shares are currently at 2020 levels and carry a PE ratio of 315. 

Technically speaking, all these bullish factors have yet to be properly accounted for, though with shares continuing to tighten in a bullish pennant formation, it feels like we're nearing an inflection point. Investors getting involved have a clear and easy support line of around $80 to work emergency stops, while to the north, triple-digit prices beckon once again. 

Alibaba first crossed the $100 mark back in October 2014. Nearly nine years later, their quarterly revenue numbers are 16 times bigger, and their business outlook is the brightest it's been in years. We're inclined to think we're about to see the second and final time it crosses over and above $100.