With the recent up and down swings in Chinese markets, I was especially interested in the post-earnings trading of stocks like Baidu (NASDAQ:BIDU). The headline from Bloomberg was "Baidu Sales Outlook Misses Estimates on Weaker Chinese Economy."
Baidu's sales forecast was the disappointing data point for investors, as the stock fell more than 12% after-hours. This is after the company posted 38.3% annualized revenue growth and an earnings per share beat of 10 cents.
I recently put a sell rating on Netflix (NASDAQ:NFLX) and I found it interesting that Baidu is expanding into streaming video. This helps to reinforce my belief that Netflix has few competitive barriers, especially in unregulated foreign markets.
Let's be real, the problem with these stocks is not the underlying business. Baidu may have lowered sales forecasts, but the current growth rate of 38.3% is spectacular. The problem is the valuation of the stock. At 33 times trailing earnings, they must execute on forecasts with perfect precision.
That being said, Baidu may be a better buy than others in this sector. This is just a quick glance at volatility and the impact of lowering guidance.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Was short NFLX a few weeks ago. May re-initiate a position some time in the future.