Alibaba (BABA) $74, JD.com (JD) $24
At $74, Alibaba does seem like it’s at a rock bottom valuation with 7-8% earnings growth priced at only 8.5x earnings and sales growth of 7% priced at only 1.3x sales. Similarly, at $24, JD is even cheaper at 8x earnings for a 12% grower and 0.3x sales for a 4-5% grower, which is also below its historical average.
But, I suspect given the China risks in the future, low multiples are par for the course. For many, China’s authoritarian impulses such as Jack Ma’s treatment, clampdowns on businesses, on Hong Kong, during the pandemic to name a few, plus supply chain problems, are a strict no-no for further investments. Ironically, a real Chinese wall for investors.
Perhaps low multiples are the new normal for China, so not sure what yardstick or benchmarks to use – or what is the level of discount needed for country/political risk? The deflationary spiral, and decrease in demand is real and not transitory, with no easy fixes – extorting businesses and investors to invest or banks to lend never has good endings, and I’m not saying that with just a philosophical bias. I also cannot see government policies easing, either.
That said, both these businesses are doing all right and will continue to recover over time – I can’t figure out whether investors will re-enter or will give Chinese companies a better valuation. I don’t have any Chinese stocks, so can’t opine – that country/political risk call you’ll have to take.