Alibaba shows China in bubble

Matt Marshall — Tue, 06 Nov 2007 07:50:13 -0800

There’s no doubt anymore. China’s stock market is in a bubble. There’s only one way forward for Alibaba’s stock, and that is down.

Shares in Alibaba.com nearly tripled today when they started trading in Hong Kong. The shares closed at HK, 39.50, after the stock was originally priced at $13.50.

Alibaba’s shares now trade at 320 times its expected net profit this year of $83 million. History has shown that no company can sustain that sort of valuation, and that sooner or later, the stock will head for a big fall. It may rise in the short-term, though, if the fever continues.

The average U.S. stock has traded at 16 times earnings from 1900 to 2005. For more on the so-called PE ratio, see here.

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Alibaba shows China in bubble