Why Alibaba Is Not Yet a Buy

In the last week, market makers lifted Alibaba's (NYSE:BABA) stock from the $155 low to around $170. Expect Alibaba to trade in the $170 range at best. The stock is not yet a long-term buy until one big catalyst emerges.

The Ant Financial initial public offering would have unlocked billions in value for Alibaba. That changed when Jack Ma spoke publicly against China’s financial regulatory framework. Within days, the Chinese government abruptly ended any hope of an Ant IPO. BABA stock is not a buy until the government approves this listing. Until then, investors risk more regulatory headwinds.

Last week, the media reported that the Chinese government summoned NetEase (NASDAQ:NTES) and Tencent (OTC:TCEHY). The government is asking gaming companies to take responsibility for the physical and mental health of minors.

Last month, China planned to propose new rules that would ban IPOs for data-heavy tech firms. Alibaba is heavily reliant on the cloud business and data.

More recently, Alibaba pledged a $15.5 billion funding to help China achieve "common prosperity." Before that, the company paid a record $2.75-billion fine after an anti-monopoly probe. At the time, investors thought the government would no longer scrutinize Alibaba.

They were wrong.

The latest $15.5 billion funding does not end China’s close watch on Alibaba. This headwind will end once the government warms up to an Ant Financial IPO. Until then, be wary of BABA stock.