Alibaba stock downgraded by Bernstein on ‘value trap’ risk

Alibaba (NYSE:) stock has been downgraded at Bernstein as analysts moved to the sidelines despite a “very cheap” valuation.

Analysts downgraded Alibaba shares from Outperform to Market Perform with the price target cut by $32 to $98 per share.

“We upgraded Alibaba a year ago on the basis that the stock had discounted perpetual low growth, and that reopening would help support growth via better category mix. Alibaba’s shares have traded in a range since — but while they remain cheaply valued, perpetual low growth no longer feels like an aggressive bear case,” analysts said in a note.

Bernstein analysts see a “value trap” risk as quarterly comps are about to get harder from here.

“We increasingly think Alibaba’s problem isn’t just a lack of user traffic, but merchant crowding driving up search costs, and pressuring merchant ROI.”

On the valuation front, shares are “modestly valued” and “still very cheap,” say analysts.

“We’re unconvinced that low multiples and modest EPS accretion can drive durable share price performance if the competitive problem in core e-commerce remains unresolved,” the analysts concluded.

Despite a downgrade, Alibaba stock is up about 1.5% in early Tuesday trading.