By all metrics, it should have been a great time for Alibaba (BABA  ). Chinese Internet stocks are exploding higher, fintech stocks are making new highs, and its subsidiary, Ant Group, was set to IPO. Further, the company had a cheaper valuation than its mega-cap, tech peers while having a higher growth rate and more growth potential. Additionally, the consensus was that the U.S. megacap, tech companies faced regulatory risk while Alibaba was in the good graces of the Chinese government.

However, this narrative has been shattered. Since CEO and founder Jack Ma made critical comments about Chinese financial regulators, the company has been in the crosshairs. The Ant Group IPO was delayed amid reports of increased capital requirements and potentially a fundamental alteration of the business model. Ma's contention was that regulators were treating Ant like a traditional bank rather than a tech company.

Antitrust Probe

The State Administration for Market Regulation, China's top market regulator, is investigating Alibaba for monopolistic behavior. In terms of market share, Alibaba is certainly a monopoly given its dominance of cloud computing, ecommerce, and fintech. However, Ma would say that its dominance is due to its superior products and customer experience.

Two specific points are that Alibaba makes suppliers on its platform sign an agreement saying that it won't sell on another platform. The other is that Ant Group would have to implement financial supervision and regulate its services.

Stock Price Outlook

The moves are a reminder for investors in Chinese stocks that although China has embraced some aspects of capitalism, it's still not a free-market in the traditional sense. Many are drawing parallels to Ma's issues with the Chinese government and Russian President Vladimir Putin's battle with Yukos, a Russian oil company that was disbanded due to the CEO's criticism of the government.

For years now, Alibaba had a lower multiple than other tech stocks despite faster growth. It seems that this was correct as Alibaba had more regulatory risk.

Alibaba's shares are now down nearly 30% since its high in late-October which has reduced its market cap by $300 billion. Based on its financials, the stock looks quite attractive as it has a forward price to earnings ratio of 17, revenue growth of 30%, and gross margins of 43%.

However, many investors might want to steer clear of the stock given the uncertainties. If Chinese regulators want to make an example out of Ma and Alibaba, share prices could go much lower. Usually, when making a trade or investment, the counterparty is another investor. In this case, the counterparty is an unhappy Chinese government that has been wary of Ma's growing influence and power.