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Shares in Baidu (NASD: BIDU) absolutely cratered on Wednesday, writes The Stalwart, when the very investment banks that underwrote it came out and said it was overvalued:

Goldman Sachs and Piper Jaffray both rated the stock "underperform," given its extraordinary debut on Aug. 5, when it rose more than fourfold.

The eagerly anticipated IPO of Baidu, known as the Chinese Google, recalled the dot-com heyday, when first-day price rise records were broken weekly. The ratings stand in stark contrast to the analyst cheerleading from underwriting banks that followed initial public offerings during the height of the Internet boom.

The cautious notes come just days after Morgan Stanley Mary Meeker, known for her bullish calls on Internet stocks in the 1990s, issued a 118 page report on Chinese Internet stocks, which she rates as attractive.

Believe it or not, I'm not asking you to decide between the underwriters or Mary Meeker. Actually, there's a greater fool here...Rick Munarriz of the Motley Fool, who has this to say:

1. Baidu.com (Nasdaq: BIDU)

I don't think anyone has ever used the words "Baidu" and "undervalued" in the same sentence. Baidu shot into the triple digits the moment it went public and has plenty to prove with its current $3.5 billion market cap. That may not seem like much of a bargain for a company that is looking to double revenues this year to just shy of $40 million.

However, Baidu is profitable. Its net margins of 17.6% during this past quarter will improve even further, like so many of China's other publicly traded companies.

As the world's sixth most-popular website, Baidu eats at the big boys' table. It is often compared to Google (Nasdaq: GOOG), since it's China's top dog in search. But the company's rather soft income statement tends to betray its gargantuan presence, and that's where way too many investors are miscalculating Baidu's earnings potential. They see meager results and forget that in China, more than 90% of the country does not go online. The per capita income is a paltry $1,300 a year.

Fine. Yet is Baidu really overvalued when it's priced at just $2.70 for every Chinese citizen? Consider Google. The company's share count nearly matches the population of the United States. Think Google is worth $300 for every stateside resident?

Forget price-to-earnings, price-to-sales, and book value...we're talking price-per-capita, which I don't recall learning about in The Intelligent Investor.

Here's what I do know, they have a forward PE of over 400 which demands a rate of growth far faster than they are exhibiting. The Munarriz thesis, of course, is that the patient investor will wait around until the day when China becomes a developed country with large internet penetration. That's nice, if you wanna forgo gains for the next few years, and if you're 100% sure that Baidu will be China's Google. But Google's trying to be that too, and in the meantime I'd rather not sit around waiting.

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Source: Who Are You Gonna Listen To About Baidu.com (BIDU, GOOG)?