Baidu Stock Overvalued

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 |  About: Baidu, Inc. (BIDU)
by: Wall St. Cheat Sheet

Yesterday an executive at leading Chinese search engine Baidu (NASDAQ:BIDU) said growth would (gasp) slow in 2011.

POP!

Shares of BIDU have been down over 6% since. Was this predictable? Yes.

Wall St. Cheat Sheet contributor Daniel Harrison explained Baidu’s valuation was “the classic illustration of a bubble — where a single concept (in this case, domination of the Chinese consumer market) totally distorts any reasonable valuation of the price of both assets and earnings.”

Let’s take another look:

Click to enlarge

Obviously, Baidu is worthy of an outsized multiple because it owns the search market in China. However, just like with Google (NASDAQ:GOOG), this multiple will contract over time as the business matures and psychological hype floats gently to the ground (See “The Baidu ‘Bubble’ Destroys Any Real Valuation”).

It will be interesting to see whether Baidu starts attracting more sellers as the business cycle changes.

Disclosure: No positions