Should Traders Consider Shorting Alibaba And Pinduoduo?

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Short Hills Capital’s Steve Weiss opened short positions in Alibaba Group Holding Ltd (NYSE: BABA) and Pinduoduo Inc (NASDAQ: PDD), he said Monday on CNBC’s “Fast Money Halftime Report.”

Alibaba’s earnings estimates have declined by nearly 50% over the last year and Pinduoduo doesn’t have any revenue, Weiss noted.

The uncertainty in China isn’t getting any better, he said: “Every day they come out and it’s something new.”

See Also: What To Expect When Alibaba Reports Its Q2 Results

Alibaba and Pinduoduo are variable interest entities, which means investors only own a revenue stream, Weiss explained.

Some Chinese companies use VIEs to gain access to foreign capital that would otherwise not be available due to government regulations in China. 

“Shareholders that still own these things are going to be severely disappointed and may in fact wind up with zero,” Weiss said. “You can’t value them relative to other U.S. companies. It’s a joke. There are no assets supporting your VIEs.”

There are a lot of great ways to make money, but “it’s not in China,” Weiss emphasized. 

BABA, PDD Price Action: Alibaba was down 2.72% at $140.24 and Pinduoduo was down 4.42% at $84.24 at time of publication.

Photo: courtesy of Alibaba.

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