Issuing debt cause stock price drop? Logic behind?

Water Cooler Investing
#1

I am following Alibaba (BABA) news these days. The stock is overall bullish. However, the price was decreasing from $118+ to $110 starting the date it announced the plan of issuing debt. This kind of contradicts what we learned about “debt tax shield (DTS)”. BABA is far from its optimal financial structure, so financial distress should not be an explanation of the price drop.

I was listening to Bloomberg radio earlier. A pro said that issuing debt somehow means the company operation is not that strong as it looks like. I didn’t get that. Any explanation?

#2

Signal. Noise.

#3

I heard Jack Ma threw down the gauntlent at Bezos and say that after enteriing into the gladitorial arena for 20 years, only one would emerge… and it would be BABA.

No opinion here but some very smart stock market guys are getting into the AMZN short. Had lunch with a Wall Street billionaire two weeks ago and he made his disdain for AMZN very clearly known.

#4

When more than 90% of the stock’s price for the biggest online retailer in the world being the present value of growth opportunity, then you know something is wrong.

#5

What Geo said.

Don’t try to predict short term price movements with fundamentals. It’ll never work. 50/50 at best. I hate guessing.

What’s the rationale for investing in BABA now? Chinese economy will be in the dumpsters in a few years if it isn’t already. Avoid the Chinese.

#6

http://www.aliexpress.com/

#7

I’ve been waiting patiently for the right time to short AMZN, gotta love that 550 P/E ratio. Their income statement looks like shit to me…

#8

Maybe the optimal capital structure is less than you think.

Issuing debt would eat away FCFE in the following years, which naturally reduces the DCFs. The market probably sees that the additional leverage fails to increase shareholder value.