2-Star Stocks Poised to Plunge: Baidu?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Chinese search giant Baidu.com (Nasdaq: BIDU  ) has received a distressing two-star ranking.

With that in mind, let's take a closer look at Baidu's business and see what CAPS investors are saying about the stock right now.

Baidu facts

Headquarters (Founded)	Beijing (2000)
Market Cap	$49.1 billion
Industry	Internet information providers
Trailing-12-Month Revenue	$1.97 billion
Management	Co-Founder/Chairman/CEO Yanhong Li CFO Jennifer Li
Return on Equity (Average, Past 3 Years)	46.7%
Cash/Debt	$1.8 billion / $390.3 million
Competitors	Google (Nasdaq: GOOG  ) NetEase.com (Nasdaq: NTES  ) Sohu.com (Nasdaq: SOHU  )

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 13.5% of the 4,788 members who have rated Baidu believe the stock will underperform the S&P 500 going forward. These bears include eksummers620 and akai0131.

Just last week, eksummers620 listed a few of Baidu's seemingly unsustainable price multiples: "[V]alued at 29 times forward earnings, 61 times cash flow, and a laughable 22 times book value."

In fact, Baidu's forward P/E of around 31 represents a clear premium to rivals like Google (14), NetEase (11), and Sohu (10).

CAPS member akai0131 elaborates on the Baidu bear case:

Will underperform because it only shows strong potential in China.

Baidu will find it hard to compete with Google across the globe and I doubt anyone non-chinese will use Baidu ... unless they also offer a very good english service...

But then considering China's problems with patents and such, and also with vast accusations of Internet hacking I doubt that Baidu will be favorably looked upon by international users.

Unless China opens up or Baidu can show integrity independent of China's political will, Baidu will have a short-lived success.

I would rather expect a google-copy-cat merging from India or Brazil to have a real good chance of competing with Google properly. But China? Considering how fragmented Chinese society is, and the difficulty of learning and using the Chinese language, Baidu will remain a Chinese artifact.

What do you think about Baidu, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

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