Is Alibaba a Bargain After Its 12% Pullback and Recent Business Restructuring?

• Wondering if Alibaba Group Holding is a bargain or already fully priced? You are not alone, as investors everywhere are sizing up whether there is more value to be unlocked in this tech giant.
• After rising an impressive 85.5% year-to-date, Alibaba's stock has captured attention. However, the last 30 days saw a 12.4% pullback, which could indicate shifting momentum or changing risk perceptions.
• Recent news has centered on Alibaba’s efforts to restructure its business and drive innovation. These moves have sparked both excitement about future growth and debate about potential execution risks. Headlines related to strategic investments and market expansions have also contributed to trading activity and speculation regarding its longer-term prospects.
• On valuation, the company meets 5 out of 6 key criteria, earning a strong 5/6 valuation score. Next, we will break down the main valuation approaches and explore a smarter way to assess whether Alibaba's current price aligns with its true potential.

Alibaba Group Holding delivered 83.4% returns over the last year. See how this stacks up to the rest of the Multiline Retail industry.

Approach 1: Alibaba Group Holding Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future free cash flows and discounting them back to today’s value in present terms. For Alibaba Group Holding, this approach uses the 2 Stage Free Cash Flow to Equity method, focusing on long-term cash generation potential in CN¥.

Currently, Alibaba’s latest twelve-month free cash flow stands at CN¥40.56 billion. Analysts provide projections for the next five years, showing strong growth. For example, free cash flow is expected to reach CN¥190.37 billion by 2029. After this, Simply Wall St extrapolates further and estimates Alibaba could generate over CN¥405 billion in free cash flow by 2035. These projections highlight ambitious growth expectations and a robust ability to generate cash over the coming decade.

Based on these cash flow estimates and using the DCF model, Alibaba’s intrinsic fair value is calculated at $264.59 per share. With today’s share price implying a 40.4% discount to this value, the analysis suggests the stock is significantly undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Alibaba Group Holding is undervalued by 40.4%. Track this in your watchlist or portfolio, or discover 923 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Alibaba Group Holding.

Approach 2: Alibaba Group Holding Price vs Earnings

The Price-to-Earnings (PE) ratio is widely regarded as the most relevant valuation metric for profitable companies because it directly compares a company’s share price to its earnings. This highlights how much investors are willing to pay for a dollar of profit. For established, consistently earning businesses like Alibaba Group Holding, the PE ratio allows investors to assess both absolute and relative value quickly.

What constitutes a “fair” PE ratio, however, is influenced by several factors. Companies with higher growth expectations or lower perceived risks generally command higher PE multiples. Those facing uncertainty or industry headwinds may trade at a discount. This is why comparing PE ratios requires context, as not all multiples are created equal.

Currently, Alibaba trades at a PE ratio of 19.88x. This is in line with the broader Multiline Retail industry average of 19.77x but below the peer group average of 37.27x. While these benchmarks offer useful reference points, they do not reflect company-specific strengths and challenges.

This is where Simply Wall St’s “Fair Ratio” adds value. The Fair Ratio, calculated at 29.65x for Alibaba, takes into account factors like earnings growth prospects, industry positioning, profit margins, market capitalization, and potential risks. Because it blends company-specific fundamentals with broader market context, it provides a more tailored and holistic view than a simple peer or sector comparison.

Comparing Alibaba’s current PE (19.88x) against its Fair Ratio (29.65x) suggests the stock is trading below what would be expected given its financial profile and future outlook. This implies the market may be underestimating Alibaba’s potential.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Alibaba Group Holding Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is your story or perspective about a company, backed up by your own assumptions for its future revenue, earnings, margins, and ultimately, fair value. It brings the numbers to life by linking a company’s story directly to a financial forecast and fair value estimate.

Narratives let investors clearly organize their reasoning. They make the connection between a company’s current situation, their outlook for the future, and what they believe the stock should be worth. On Simply Wall St’s Community page, millions of investors use Narratives as easy-to-build, dynamic investment plans that update automatically whenever new news or results are released.

By comparing the Fair Value determined by different Narratives against the current price, investors can quickly decide when to buy or sell, grounded in their own logic and the latest developments. For example, one Narrative projects Alibaba Group Holding's fair value at $107.09, signaling caution and already-priced-in growth. Another sets a bullish target at $196.83, highlighting opportunity in AI, cloud, and margin expansion. Even for the same company, users see very different paths forward.

For Alibaba Group Holding, we will make it really easy for you with previews of two leading Alibaba Group Holding Narratives:

🐂 Alibaba Group Holding Bull Case

Fair Value: $196.83

21% undervalued vs current price

Revenue growth: 8.79%

• Large-scale investments in AI, cloud, and quick commerce are expected to drive top-line growth and margin expansion over the medium term.
• Initiatives like key partnerships and ecosystem integration are increasing user lifetime value, cross-selling, and enterprise market share.
• Profitability faces short-term headwinds due to heavy upfront spending. The long-term view is for operational efficiencies and improved earnings as new business segments mature.

🐻 Alibaba Group Holding Bear Case

Fair Value: $107.09

47% overvalued vs current price

Revenue growth: 14.12%

• Despite strong revenue and cloud/AI momentum, macroeconomic and geopolitical risks—especially US-China tensions—may slow growth and weigh on valuation multiples.
• Regulatory pressures and heavy competition pose ongoing challenges. The current share price is seen as already pricing in most near-term positives.
• While Alibaba remains dominant in e-commerce and cash generation, the risk of overpaying is highlighted given the fair value estimate below the market price.

Do you think there's more to the story for Alibaba Group Holding? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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