Baidu.com (BIDU) is the leading internet search provider in the Peoples Republic of China, and the first Chinese company to be included in the Nasdaq-100 index. Often called the Google.com (GOOG) of China, Baidu has given investors unprecedented returns over the last few years, and blistering earnings growth to match. Baidu shares are up over 850% in the last 5 years, but down roughly 10% over the last year, the growth story is not broken, and the internet is not going anywhere; now may be the time to start buying in.
(click to enlarge)
Earnings Growth and Market Capitalization:
Baidu enjoys one of the fastest growth rates of any publicly traded company, in one of the fastest growing internet markets: China. A quick analysis of past earnings growth shows the company has executed superbly, earning $1.57 per share for 2010, and just over $3 at $3.09 per share in 2011. For the full year 2012 Baidu looks to earn $4.67, and $6.53 in 2013; leaving the shares trading at 18x '13 earnings. For a company that has historically had a multiple north of 50x earnings, and forecasts sales growth of +50% over the next few years, Baidu shares currently trading at 36.7x earnings may be a steal at these levels. With a market cap of only 43B, Baidu shares could be prepped to double over the next few years from the low $120 range.
A Chinese slowdown would hurt Baidu earnings growth, and a sell-off of Asian markets would further compress everyone's multiples. The shares have a 52-week low of $100.95, but also a 52-week high of $165.96.
Baidu has historically been a good stock to pick up after a 10-15% sell-off like we currently have, and after reporting decent Q1 earnings confirming growth I would rather be a buyer in the $110-$125 price range than a seller. There is also legitimate debate among traders as to whether the May 18th Facebook (FB) IPO will be a boost for Baidu shares. With FB shares possibly being priced well north of 80x earnings, with an arguably slower growth trajectory than Baidu, investors may realize the value of BIDU trading at only 36x earnings.
Longer-term earnings growth should power Baidu shares substantially higher, and in the shorter-term shares appear oversold in the low $120's. Over the last year shares have bounced reliably off the $115 support level several times; consolidating and preparing to trade higher.
Always do your homework.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BIDU over the next 72 hours.