If considering a foray into China’s e-commerce giant Alibaba (NYSE: BABA) prompts trepidation, recent stock performance would corroborate your caution. Since 2021, the resistance faced by the company has been palpable – weighed down by a harsh regulatory landscape and continued economic frailty in its primary market. The stock remains within proximity to its multiyear low reached in late 2022.

However, while it’s natural to be wary given this turbulent past, could it be that many investors are fixated on Alibaba’s historical disappointments rather than the promising future ahead? Could this indicate a “buy” signal for Alibaba stock?

The Trials and Tribulations of Alibaba

For those perusing this text, Alibaba should be no stranger. The company is the powerhouse behind China-focused e-commerce platforms Taobao and Tmall, in addition to the logistics entity Cainiao, cloud computing services, and entertainment ventures. E-commerce remains the primary revenue source for Alibaba.

What transpired in 2021? Beijing’s regulatory crackdown took its toll, alongside the challenge of following up on the surge in online shopping witnessed in 2020. Prolonged lockdowns in China further exacerbated the economic slump compared to other global regions. China’s GDP growth of 5.2% in the previous year marked a significant downturn, except for the early pandemic period.

Noteworthy is the flux Alibaba has endured post-founder Jack Ma’s departure as chairman in 2019. Numerous management upheavals ensued, with high-profile division spin-offs being rescinded, including the logistics arm in March, to fortify the e-commerce sector.

While these decisions may prove strategic, the lack of decisiveness raises doubts.

Regardless, both the company and its operating environment appear to be on the cusp of transformation. Alibaba’s stock, trading at less than 10 times its current and forecasted earnings per share, could soon mirror this shift.

The Awaited Alibaba Resurgence

Caution is warranted, no doubt, but undervaluing the potential upside could be a misstep for a couple of reasons.

Firstly, China’s improving economic trajectory plays a pivotal role. The International Monetary Fund upwardly revised the nation’s growth forecast from 4.6% to a robust 5%, with retail spending witnessing consistent year-over-year increases since January 2023.

Simultaneously, Alibaba appears to be under the stewardship of a visionary team following CEO Eddie Wu’s appointment in September. Chairman Joe Tsai’s affirmation of Eddie’s leadership underscores a strategic focus on core businesses, cloud computing, and e-commerce.

Deciphering the signs reveals the awaited amalgamation of a promising company and leadership cohort. The decision to retain the logistics arm, though challenging, presents a lucrative avenue to enhance the marketability of Taobao and Tmall. Holding onto the cloud business aligns with a strategic play on the burgeoning artificial intelligence sector.

Unraveling the Enigma

The irony persists as Alibaba’s underperformance contrasts analysts’ optimistic views. Forecasts project robust revenue and earnings growth through 2026.

Data source: StockAnalysis.com. Chart by author. Figures are in Chinese yuan.

Analysts collectively assert that the ADR (American depository receipt) variant of Alibaba’s stock holds a 40% premium relative to its present valuation. The stock trading below 10 times its anticipated 2024 earnings bolsters this assertion.

Why then the lingering struggle?

The dilemma lies in a common market fallacy – the ingrained skepticism around a company’s ability to transcend its adversities. Yet, Alibaba’s tide may be turning. A few more quarters of success could be the catalyst needed to ignite substantial, sustained growth.

Consider this: Billionaire investor David Tepper’s Appaloosa Management significantly augmented its Alibaba stake in the first quarter of the year, positioning it as the fund’s premier holding. Tepper’s confidence hints at insights eluding many regarding Alibaba’s current allure.

Align the dots. Embrace the possibility that Alibaba may indeed be at a tipping point towards resurgence.