Is Alibaba's Stock Rally Losing Steam? The Sell-Side Doesn't Think So

Shares of Chinese e-commerce giant Alibaba Group Holdings Limited BABA have been volatile for much of this year. The stock began picking up momentum in recent sessions, raising hopes of a strong recovery.

Alibaba's Rally Stalls: Alibaba shares hit a multiyear low of $138.43 Oct. 4 amid broader market weakness and general caution toward the stock as Chinese regulators continued to hound the company and other high-profile Chinese tech names in a bid to curb their dominance.

The stock has embarked on a mini-rally since then and was higher for five straight sessions.

Between Oct. 4 and Oct. 11, Alibaba added 17.4%, and it ended Monday's session at $163.95, its highest close since Sept. 13.

The stock gave back 0.6% of those gains Tuesday, closing at $163.

Alibaba shares hit an all-time high of $319.32 on Oct. 27, just ahead of an intensification of its regulatory travails.

Given the lack of direction shown by the stock, investors are keenly on the lookout for cues regarding the near- and medium-term direction of the stock.

Related Link: What To Expect When Alibaba Reports Its Q2 Results

Sell-Side Cautious But Upbeat: Sell-side analysts are broadly positive on the stock, as reflected by their largely bullish stance. Out of the 48 analysts covering the stock, 18 analysts rate the stock a Strong Buy, 29 analysts a Buy and remaining one is on the sidelines, according to the Yahoo database.

The average analyst price target for Alibaba is $246.32, suggesting 50.42% upside potential from current levels. This is despite many on the sell-side trimming their price targets recently to account for the softening of the Chinese macroeconomic environment.

All the same, analysts are cautious about the near-term prospects of Alibaba due to macro and micro factors.

Chinese consumer sentiment is taking a hit from the recent Zhengzhou flood to the resurgence of COVID-19 cases in some key provinces such as Jiangsu, Needham analyst Vincent Yu said in a recent note.

The biggest hit has been on discretionary consumption, including apparel and home appliances, which are Alibaba's key categories, he added.

Additionally, the regulatory overhang is still a prevalent risk that could weigh down on Alibaba's fundamentals.

KeyBanc analyst Hans Chung said he continues to view Alibaba as attractive long-term given its moat in e-commerce and Alicloud's potential.

Even if the looming risks are accounted for, Alibaba's valuation vis-à-vis opportunities is too attractive to keep an investor on the sidelines for long.

Related Link: Why These 2 Alibaba Analysts Expect Muted Near-Term, Positive Long-Term Prospects