I have been negative on Baidu (BIDU) for a long time now. It has nothing to do with the company, but the fact I think this is a very expensive stock. Yes, many people look at Google (GOOG) and compare it to Baidu and think that Baidu is cheap. But who told you that Google is cheap? Also, where is it written that because Google has the valuation that is has, Baidu must have the same?
I have warned in past articles not to pay too much attention to sell side analyst reports, for the simple reason that they are almost always behind the curve. Not that we should not take them into consideration, just that most of the time we can not make use of the information, because by the time analysts come up with a new recommendation and or new target price, the market has already discounted it.
For example Forbes tells us that Goldman Sachs reiterated their neutral rating on the stock, but with a new target price. Goldman's new target for the stock is now $89 from a previous target of $135 a share. Reason being is Goldman cut Baidu's EPS estimate by 22% for 2013 and 30% for 2014. Obviously such a drastic EPS change must also be accompanied by a new target price.
Citi's Muzhi Lee also doesn't like Baidu, where via Barron's she says:
We recommend investors to sell Baidu now and thereafter monitor whether its competitive edge is improving; We do not recommend investors bottom fish based on price chart or valuation trend; We do not recommend investors analyze Baidu by assuming it is or will become Google in China. The management never intended to do so.
That not being bad enough, CLSA also downgraded Baidu to under-perform from outperform with a target price of $105 per share.
Let me repeat what the cryptographic language of Wall Street ratings really mean. A hold or market perform rating means sell. A sell rating on a stock means short the kitchen sink, and only a buy actually means a buy. If something on Wall Street is not a buy, then it is probably a sell. And since many analysts have a sell rating on Baidu's stock, then chances are that they are more bearish on the stock than most imagine.
I for one continue to have the same opinion on the stock (please consider: Baidu: Don't Play This Dog For The Long Term). I think it's an overvalued stock and will not perform well for long term buy and hold investors. You can trade it, you can short it and you can swing trade it, but holding onto to it long term will not make you money.
Yes I know you can find many reasons to buy it, but be careful not to go against the market whatever you think. Also note that this stock has made a lot of money for a lot of people over the past several years. No one ever lost money selling at a profit. And as the stocks falls, more and more investors -- who still have profits -- will want to sell.
On a technical note:
The stock is a long-term downward channel. I don't know where it might stop, but in my opinion, if Baidu falls much further, there is a big chance we will see a lot of forced technical selling, margin selling and high leveraged account selling.
Finally, the market didn't wait for Goldman to say the stock was worth less than what many investors thought. It did so ahead of Goldman. So if you see the stock lower by $20 in the future, don't count on what analysts have said in the past, because more than likely they will once again be behind the curve.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.