Everyone wants more for less, and stock market investors are no exception. As they research potential value stocks to add to their portfolio, they might want to take a look at Chinese tech giant Alibaba (BABA 2.33%).

Alibaba is a great way to bet on the red-hot e-commerce industry for just a fraction of the valuation of the company's rivals. And while Alibaba faces some regulatory uncertainty over alleged anti-competitive practices, its diversified business model and healthy growth rate make up for these challenges.

A red-hot industry 

Valued at $2.1 trillion, China's e-commerce market is the biggest in the world. And it is expected to grow at a compound annual growth rate (CAGR) of 12.4% and hit $3 trillion in value by 2024. Alibaba is a great way to bet on this opportunity because of its dominant market share of around 50% in business-to-consumer (B2C) e-commerce. That's compared to JD.com (JD 5.80%) and Pinduoduo's B2C shares of 27% and 13%, respectively.  

Cash in a shopping cart

Image source: Getty Images.

Alibaba's e-commerce subsidiaries Taobao (which focuses on consumer-to-consumer sales) and Tmall (which focuses on B2C) use third-party business models. Instead of buying inventory and retailing products to consumers, they operate marketplaces that host and advertise other businesses' online sales for a fee. This strategy helps save operational costs, and it gives Alibaba dramatically higher margins than its closest rival, JD.com, which uses a first-party business model.

In 2020, Alibaba reported an operating profit margin of 13%, which is significantly larger than JD.com's operating margin of just 1.7% over the same period. 

But Alibaba isn't limiting itself to e-commerce. The company also aims to transform brick-and-mortar shopping through a concept known as "New Retail," which involves digitizing in-person shopping experiences.

Alibaba has implemented this strategy through its Freshippo food store chain, which offers cutting-edge features such as digital price tags, robotic product transport and robotic waiters. The company has also spent $3.6 billion to acquire a controlling stake in hypermarket retailer Sun Art to help boost its physical footprint.

But what about the regulators?

With such a massive market share, Alibaba has drawn the attention of Chinese antitrust regulators, who fined it $2.8 billion for allegedly restricting competition and infringing on its merchants' businesses. The company enforced a "choose one" requirement that prohibited some clients from working with other e-commerce platforms. Management has accepted the fine, and it said it plans to ensure compliance going forward.

It is unclear if compliance will have a long-term impact on Alibaba's operating results (at just 12% of 2020 net income, the fine itself likely won't). But considering Alibaba's strong growth rate and dirt-cheap valuation, any potential weakness looks priced in. 

Fourth-quarter revenue surged 64% year over year to 187.4 billion yuan ($28.6 billion), while adjusted EBITDA increased 18% to 29.9 billion yuan. The company's revenue streams are also diversified, with cloud computing representing 8% of revenue and a potential source of future earnings growth. Alibaba Cloud's revenue grew 37% to 16.8 billion yuan in the fourth quarter. The business is also getting closer to consistent profitability, with adjusted EBITA increasing from a loss of 179 million yuan last year to a gain of 308 million yuan in Q4. 

An unbeatable valuation 

With a forward price-to-earnings (P/E) multiple of just 16, Alibaba is significantly cheaper than the S&P 500 average of 44. It is also an excellent value compared to U.S. e-commerce giants such as Amazon, which trades for 45 times expected earnings, or Shopify -- valued at an eyewatering forward P/E of 217. Regulatory uncertainty is a likely explanation for Alibaba's discount. But with that overhang priced in, investors have an opportunity to bet on a growth stock trading at value stock prices