Alibaba Group (BABA 2.65%), China’s largest e-commerce and cloud infrastructure company, was once considered a great growth stock. From fiscal 2015 to fiscal 2022 (which ended in March 2022), its revenue and adjusted earnings per share (EPS) expanded at a compound annual growth rate (CAGR) of 41% and 21%, respectively.

That explosive growth was driven by the strength of its Taobao and Tmall marketplaces in China, the rising usage of its cloud-based services, and the expansion of its ecosystem with its smaller brick-and-mortar retail, cross-border commerce, logistics, and media segments.

Alibaba went public at $68 per American depositary share (ADS) in September 2014, and its stock more than quadrupled to a record closing price of $310.29 on Oct. 27, 2020. At the time, it seemed like one of the safest and simplest plays on China’s booming e-commerce and cloud markets.

But today, Alibaba’s stock trades at around $120. That decline was caused by two major challenges. First, China’s antitrust regulators hit its e-commerce business with a record fine in 2021 and shackled it with new restrictions. Those setbacks eroded Alibaba’s defenses against fierce competitors like PDD Holdings and JD.com. Second, the macro headwinds in China disrupted the growth of its e-commerce and cloud businesses.

From fiscal 2022 to 2025, Alibaba’s revenue and adjusted net income both grew at a CAGR of 5%. That slowdown convinced many investors its high-growth days were over, but its stock now trades at just 16 times this year’s earnings. The bulls argue that the valuation is too cheap to ignore, while the bears claim its risks justify that lower multiple. Let’s see which argument makes more sense.

Is Alibaba’s business finally stabilizing?

Over the past year, Alibaba’s revenue growth broadly stabilized, its operating margin rose to the double digits, and its adjusted EPS growth turned positive again.

Data source: Alibaba. In CNY terms. YOY = Year-over-year. Fiscal years end March 31.

For the full year, its revenue and adjusted EPS rose 6% and 5%, respectively. That still represented a slowdown from its 8% revenue growth and 14% adjusted EPS growth in fiscal 2024, but it indicated its business was gradually stabilizing.

That stabilization was supported by the growth of its overseas e-commerce marketplaces (Lazada in Southeast Asia, Trendyol in Turkey, Daraz in South Asia, and AliExpress for its cross-border purchases), which offset Taobao and Tmall’s softer growth in China; the expansion of its logistics business for third-party customers, and AI-driven tailwinds for its cloud business. It also bought back 5.1% of its shares for $11.9 billion in fiscal 2025, and it plans to allocate a lot more cash to its future buybacks.

From fiscal 2025 to 2028, analysts expect Alibaba’s revenue and EPS to grow at a CAGR of 7% and 11%, respectively. That growth should be driven by its recent catalysts, new live streaming features and more competitive discount offerings for its domestic marketplaces, and potential spinoffs or initial public offerings (IPOs) for its cloud and logistics divisions. A favorable trade deal between the U.S. and China would also alleviate some pressure on the Chinese economy and ignite fresh consumer and cloud spending.

So is Alibaba’s stock too cheap to ignore?

Alibaba’s high-growth days are probably over, and it still faces plenty of macro, competitive, and regulatory challenges. But if you expect the trade tensions to eventually ease, China’s economy to keep growing, and for Alibaba to stay at the top of its expanding e-commerce and cloud markets, then its stock seems too cheap to ignore at these levels.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.

Its Hong Kong-listed shares plunged 28% from a March high through Thursday, nearly double the loss in a gauge of Chinese tech peers. Rivals JD.com Inc. and Meituan have dropped by similar measures amid daily headlines on government efforts to contain the destructive hyper-competition being dubbed “involution”.

At least four brokers, including Goldman Sachs Group Inc. and HSBC Holdings Plc, have cut their price targets by an average of 8% since late June as the latest phase of the yearslong turf war continues to escalate.

“It could last longer than expected,” said Luo Jing, investment director at Value Partners Group Ltd. in Hong Kong. “The players are financially stronger than in the previous round, with more cash and better cash flow positions.”

Alibaba’s food-delivery strategy has distracted investors away from the DeepSeek-led AI boom that drove its shares up more than 80% in just two months earlier this year. The company has merged its delivery unit into its core business and boosted subsidies since JD.com’s formal entry to the space in February.

It’s a costly fight. Nomura Holdings Inc. estimates about $4 billion has been burned on discounts in the June quarter alone by Alibaba, Meituan and JD.com. It sees Alibaba dictating the intensity and scale of the coupon war going forward.

Sector leader Meituan said Saturday that it was going into “attack” mode versus Alibaba, while JD.com announced a new incentive scheme this week. The companies’ extreme moves have drawn much criticism from the government over the potential disastrous impact to the industry, as well as warnings on driver health and food safety.

Alibaba might sustain a loss of 41 billion yuan ($5.7 billion) in its food-delivery business for the 12 months through next June, according to Goldman Sachs, equal to about a third of its net income for the fiscal year ended March.

“Aggressive investment in food delivery, insta-shopping will meaningfully damp its near-term earnings outlook,” HSBC analysts including Charlene Liu wrote in a note this week, cutting their price target for Alibaba by 15%.

The consensus estimate for Alibaba’s 12-month forward earnings per share is down about 6% since early May. Analysts are still overwhelmingly bullish, with 44 buy ratings on the Hong Kong shares and no holds or sells. The stock also remains historically cheap at a price-to-earnings ratio of less than 11 times.

In terms of uspide risks, UOB Kay Hian Holdings Ltd. analyst Julia Pan notes that the government may step in to curb price competition if the market takes a heavy blow and margins get squeezed further. Alibaba’s current valuation is low enough to trigger some dip buying, she added.

The stock climbed as much as 3.5% Friday amid a broad rally in Hong Kong.

But investors may remain cautious until a definitive end to the steep discounts, especially if they trigger more earnings downgrades and constrain investment in all-important AI business. 

“We do need to watch for price competition that evolves into a situation where certain companies decide to gain market share at the expense of profitability,” said Nicholas Chui, a Franklin Templeton portfolio manager. “As a stock picker, we would avoid those stocks.”