Alibaba (NYSE: BABA), China’s largest e-commerce and cloud company, went public at $68 per American depositary share (ADS) on Sept. 18, 2014. It was valued at $169.4 billion upon its debut, making it the largest U.S. initial public offering (IPO) ever. Its stock hit an all-time high of $312.87 on Oct. 27, 2020. But on Jan. 18, its stock closed just barely above its IPO price at $68.05.

It has bounced back to $74 as of this writing, but that’s still well below its record highs. What happened?

Three challenges drove away the bulls. China’s antitrust regulators tightened their grip on Alibaba’s e-commerce business; growing competitors like PDD Holdings‘ Pinduoduo lured away its merchants and shoppers; and macro headwinds throttled the growth of its online marketplaces and cloud-based services. Rising interest rates and delisting threats for U.S.-listed Chinese stocks only exacerbated that sell-off.

Those headwinds could continue to limit Alibaba’s gains this year, but I think long-term investors can consider buying the stock as it revisits its IPO price for three simple reasons.

1. Revenue growth is stabilizing

Alibaba’s revenue only grew 2% in fiscal 2023 (which ended last March) as its core e-commerce and cloud businesses stalled out. But in the first six months of its fiscal 2024, revenue rose 11% year over year, and analysts anticipate 9% growth for the full year.

That stabilization can be attributed to the rapid growth of its international digital-commerce business, which houses its Southeast Asian marketplace Lazada, its Turkish marketplace Trendyol, and its cross-border marketplace AliExpress. That overseas expansion has been offsetting the slower growth of its Taobao and Tmall marketplaces in China, which still face stiff competition from PDD’s Pinduoduo and JD.com.

Alibaba’s cloud business only grew at low single-digit rates in the first half of fiscal 2024, but its growth could accelerate again as the macro environment improves. Its smaller logistics, local services, and digital-media units are still growing at double-digit rates, and they could eventually diversify its top line away from its e-commerce and cloud businesses.

Story continues

From fiscal 2023 to 2026, analysts expect Alibaba’s revenue to expand at a compound annual growth rate (CAGR) of 8%. That’s a lot slower than its double-digit growth over the past decade, but the company isn’t headed off a cliff yet.

2. The stock is too cheap to ignore

As Alibaba’s revenue growth cooled off, it cut costs to boost its margins. The restructuring of its business into six separate divisions led by different CEOs last year also sets it up to raise cash through spin-offs and IPOs over the next few years.

Alibaba’s operating margin expanded from 8.2% in fiscal 2022 to 11.6% in fiscal 2023, and analysts expect that figure to rise to 15.1% in fiscal 2024. Its earnings per share (EPS) are expected to grow at a CAGR of 31% from fiscal 2023 to 2026. That’s a stellar growth rate for a stock that trades at just 10 times next year’s earnings. If you believe Alibaba can overcome its macro, competitive, and regulatory headwinds, then its stock is simply too cheap to ignore right now.

3. Its insider buys and big buybacks

Lastly, Alibaba’s insider purchases and buybacks also indicate its stock is on sale. Co-founders Jack Ma and Joseph Tsai recently bought $200 million in shares, and the company bought back $4.8 billion in shares in the first half of fiscal 2024.

Investors need to tune out the near-term noise

Alibaba looks like a deep value play at these levels, but it could remain volatile this year as concerns about China’s economic growth and the escalating tensions between the U.S. and China continue to compress the valuations of China’s top stocks.

Nevertheless, investors who can tune out all that near-term noise could still reap some massive long-term gains as Alibaba stabilizes its revenue, diversifies its business, expands its operating margins, and buys back more shares.

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

3 Reasons to Buy Alibaba Stock as It Revisits Its IPO Price was originally published by The Motley Fool