1 Growth Stock Down 72% to Buy Right Now

Just when it seems like things can't get any worse for Alibaba Group (NYSE: BABA), POW! Things get worse.

Alibaba Group's former CEO and current head of cloud computing Daniel Zhang is leaving the company. No specific reason has been offered for his exit either, making the announcement all the more unsettling for investors.

The stock's apparent rebound effort that's been underway since October was undermined following the announcement, with share prices sliding back and now sitting about 72% below their late-2020 peak. Lower lows could be in the offing.

As a long-term investor, you could join others steering clear of this Chinese tech giant's stocks. Or you could view this most recent stumble as what it more likely is: a temporary setback, and an opportunity to step into a stake in an underestimated company.

Alibaba is powering through the weakness

While we don't know the circumstances behind Zhang's resignation, the abruptness of the move could indicate some sort of internal turmoil. As the old adage goes, where there's smoke, there's fire.

Let's also not forget that China's economy -- and Alibaba's chief market -- is looking increasingly lethargic. Although last month's retail sales bounced back from July's unimpressive annualized growth pace of 2.5%, unemployment within the country is ticking higher again. China's all-important exports also declined for a fourth consecutive month in August, explaining the country's recent growth in joblessness and subsequent deterioration in consumer demand. With market watchers desperate for any hints of economic strength, the nation's recent uptick in inflation was actually celebrated as a sign of progress.

Given this backdrop, Alibaba stock's prolonged weakness can't be entirely surprising.

Whatever headwinds are blowing in China, however, Alibaba seems to be pushing through. Last quarter's revenue was up 14% year over year, led by its consumer-facing e-commerce operations.

BABA Revenue (Quarterly) Chart

BABA Revenue (Quarterly) data by YCharts

Analysts expect its full-year sales growth to cool to only about 8% for the 12-month stretch ending in March. Even then, however, these same analysts are calling for a reacceleration of the company's top-line growth to nearly 10% next fiscal year. Meanwhile, per-share profits are projected to reach $9.15 this year -- up from last year's $7.64 -- en route to $9.96 per share next fiscal year.

And the leading growth driver? Mobile e-commerce. This sliver of China's online shopping market is relatively young. As such, its adoption rate is still ramping up at a faster clip than economic weakness is slowing things down.

The mobile e-commerce explosion plays into Alibaba's hand

Mobile internet has been pretty standard stuff in China for a few years now. The number of regular internet users eclipsed the 1 billion mark in the middle of last year, according to data from China's Internet Network Information Center (CNNIC), with nearly 100% of these people accessing the World Wide Web using a mobile phone. That's roughly three-fourths of the country.

China's mobile e-commerce market opportunity, however, remains less than fully tapped.

As was the case everywhere else, the COVID-19 pandemic jolted smartphone-based shopping into place in China. GlobalData analyst Ravi Sharma explained in a company report, "The Chinese e-commerce market evolved rapidly during the last five years, supported by the rapid adoption of smartphones, growing internet penetration, increasing number of online shoppers, and the availability of alternative payment solutions such as Alipay and WeChat Pay."

Unlike most other regions, this growth is still going strong. The CNNIC adds that online shopping's growth dramatically outpaced that of conventional shopping through the first six months of this year, up 13.1% versus the same six-month time frame from 2022. Notably, another 38.8 million Chinese residents became new online shoppers during this period, reaching a headcount of 884 million. Given that most of the country's internet users are connecting with their smartphones, presumably, they're using mobile apps to drive at least most of this shopping growth.

To this end, Alibaba reported last month that between April and July of this year, the number of daily users of the Taobao shopping app grew at least 6% in every single one of those months.

China's central bank finally seems ready to put some serious stimulus in place, too. Late last month the People's Bank of China lowered its one-year prime rate. Earlier this month it lowered interest rates for first-time home buyers.

If this dovish accommodation is a hint of what's to come, look for China's consumerism to recover sooner than many investors seem to believe it will. That's good news for an already solid Alibaba. In the meantime, Alibaba's doing pretty well with its conventional, non-mobile e-commerce platform.

Just don't lose sight of the bigger Alibaba picture

But Daniel Zhang's unexpected exit? Don't sweat it. China's a quirky country, with the lines separating business and politics proving rather blurry. He may be feeling pressured to step down for political reasons. Maybe Alibaba's cloud-computing revenue growth of only 4% just isn't satisfactory to the board of directors. Perhaps the 51-year-old is just ready to call it quits and enjoy life without the pressure that comes with being a high-profile executive. We may never know the true reason he's stepping down.

What we do know is that Alibaba is bigger than one man, even if that man is co-founder and former chief executive Jack Ma.

So, don't read too much into this particular headline. Alibaba's going to do just fine with or without Zhang in charge of cloud computing. China's rising tide of mobile shopping is stronger than any of the economic headwinds currently blowing ... headwinds that may be on the verge of turning into tailwinds.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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