Alibaba Group Holding Ltd (NYSE:BABA) has been showing support at a lot of price levels, but what does this mean for the stock price in terms of stability? Jim Cramer explained on CNBC why Alibaba Group Holding Ltd (NYSE:BABA)’s stock price chart has a number of plateau shaped regions.
Cramer used a hypothetical situation from a mutual fund manager’s point of view to describe Alibaba Group Holding Ltd (NYSE:BABA) stock price dynamics. Also, in his example the mutual fund gets shares at the IPO price of $68 to begin with.
“[…] So you get a million shares on the deal at $68, right, and what you are trying to do is create a blended average of your mutual fund. So, if you buy a million shares at $88 you got an average of $78 and the stock is at $88, that is why you are seeing the support at each level […],” said Cramer.
Alibaba Group Holding Ltd (NYSE:BABA)’s price is also strongly correlated with Yahoo! Inc. (NASDAQ:YHOO) according to Cramer. Yahoo! Inc. (NASDAQ:YHOO) stock had been hovering around $42 before Alibaba Group Holding Ltd (NYSE:BABA)’s IPO, but now it’s trading at $38.96.
However, Cramer sees this as a positive sign since the price has stabilised at this level. He expects to see a reflection of this stability in Alibaba’s stock price as well.
People have been skeptical about Yahoo’s management or more specifically Marissa Mayer who is Yahoo’s CEO, according to Cramer. Her investment abilities haven’t been able to garner the support of investors. However, Cramer believes that Marissa Mayer should not be the only variable here. Yahoo has landed itself a big fat check from Alibaba Group Holding Ltd (NYSE:BABA)’s IPO and that has got to mean something in terms of stock valuation, according to Cramer.
Alibaba Group Holding Ltd (NYSE:BABA) is currently trading at $87.7 which is 2.44% below the price at the closing bell yesterday.
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