Why Alibaba Was Down Today

What happened

Shares of Alibaba Group (BABA 0.12%) moved higher in pre-market trading on Thursday after news broke that Chinese regulators may be ready to let the e-commerce giant revive its plans to hold an initial public offering for its financial services affiliate, Ant Group.  

Despite that positive news, it seems that some investors took the early pop as an opportunity to sell. The stock was down 5.7% as of 2:16 p.m. ET on Thursday. However, there could be substantial upside in Alibaba as investors warm up to Chinese tech stocks again.

So what

Alibaba's share price has plunged over the past year as the government in Beijing has put China's biggest tech players under intense scrutiny. And the Securities and Exchange Commission's (SEC) threats to delist Chinese stocks from U.S. markets if they don't comply with U.S. auditing rules have been further contributing to the downward pressure. In early May, the SEC added over 80 companies to the list of those at risk of delisting under the Holding Foreign Companies Accountable Act, which was signed into law in 2020. 

Alibaba shares have been down by as much as 67% since hitting an all-time high in 2020, but market sentiment is starting to turn positive. Earlier this week, Alibaba stock jumped following news that China had issued a new wave of video game approvals. Gaming companies had also fallen under regulators' microscopes last year, and the approvals were taken as a sign that China is starting to shift its policies toward supporting its leading companies and more aggressively encouraging economic growth.

Now what

JP Morgan recently upgraded Alibaba stock to overweight from underweight. In April, Goldman Sachs resumed coverage of Alibaba with a buy rating and a price target of $185 -- nearly double the current share price. Out of the 37 analysts who cover the stock, 29 rate it a buy. 

China's largest e-commerce and cloud services provider trades at a forward price-to-earnings ratio of 15 times this year's earnings estimate. That price is a steal for a company in Alibaba's competitive position.