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Baidu (NASDAQ:BIDU) Q4 and fiscal year 2012 results are out and they are smashing:

  • Total revenues in the fourth quarter of 2012 were RMB6.335 billion ($1.017 billion), a 41.6% increase from the corresponding period in 2011.

  • Total revenues in fiscal year 2012 were RMB22.306 billion ($3.580 billion), a 53.8% increase from 2011.

  • Operating profit in the fourth quarter of 2012 was RMB2.848 billion ($457.1 million), a 24.0% increase from the corresponding period in 2011.

  • Operating profit in fiscal year 2012 was RMB11.051 billion ($1.774 billion), a 45.9% increase from 2011.

  • Net income attributable to Baidu in the fourth quarter of 2012 was RMB2.795 billion ($448.7 million), a 36.1% increase from the corresponding period in 2011. Diluted earnings attributable to Baidu per ADS[2] for the fourth quarter of 2012 were RMB7.99 ($1.28);diluted earnings attributable to Baidu per ADS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2012 were RMB8.18 ($1.31).

  • Net income attributable to Baidu in fiscal year 2012 was RMB10.456 billion ($1.678 billion), a 57.5% increase from 2011. Diluted earnings attributable to Baidu per ADS for fiscal year 2012 were RMB29.83 ($4.79); diluted earnings attributable to Baidu per ADS excluding share-based compensation expenses (non-GAAP) for fiscal year 2012 were RMB30.44 ($4.89).

Great results right? The company produces excellent profits, great growth and should be in everyone's 401k plan right? Think again.

The problem with Baidu isn't that's it's not a good company, nor that it's not growing. The problem with Baidu is that it has become too expensive because growth is decelerating as are margins.

Please look at the chart below:


(Click to enlarge)


(Click to enlarge)

The above chart (data just below the chart) displays revenue, operating profit and net income on a quarter over quarter basis since Q1 2011. As you see, revenue, net income and operating profits are leveling off. To get a better picture, the chart below shows quarter over quarter data in percentage terms.


(Click to enlarge)

Data from Baidu

The question is, why would anyone pay for any stock 10 times its sales and book value, if it's not growing by a significant amount? Yes there was probably a reason to pay through the nose valuations for this stock several years ago, but I don't think it is warranted today.

Just to give you an illustration of how expensive this stock is, let's compare Baidu to Google (NASDAQ:GOOG). And Google is not a stock I would call cheap or a stock I would recommend. In fact, Google is also a dog dead money stock with a different bark (more on Google in another article).

BIDU Price / Sales Ratio TTM Chart
(Click to enlarge)

BIDU Price / Sales Ratio TTM data by YCharts

Anyone who thinks they will make money long term -- that I defined as over a period of 5 years or more -- investing in a stock worth 10 times sales, better read my previous post called Beware Of The Price/Sales Trap.

And what is my definition of a dog stock you say? An expensive Price/Sales stock that has not gone nowhere for 1-2 years or more and probably won't go anywhere for many years to come, because the fundamentals have to catch up to the price.


(Click to enlarge)

Baidu is a stock I recommended as a short candidate several months ago (read my take here). I am not telling you to short this stock, because that requires a high level of expertise, but I am telling you this.

If you are holding onto this stock for long-term appreciation, then you are not going to make any money. You can make good money by swing trading this stock up and down, but not by holding it from this point forward. This stock is a prime candidate to become a dog stock and any money you put into this stock for the long term, in my opinion will be dead money.

Source: Baidu: Don't Play This Dog For The Long Term