Based on the aggregated intelligence of 170,000-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.
|Headquarters (Founded)||Beijing, China (2000)|
|Market Cap||$39.3 billion|
|Industry||Internet information providers|
|Trailing-12-Month Revenue||$1.01 billion|
|Management||Co-Founder/CEO Yanhong Li
CFO Jennifer Li
|Return on Capital (Average Past 3 Years)||28.6%|
|Competitors||Google (Nasdaq: GOOG )
Sohu.com (Nasdaq: SOHU )
SINA (Nasdaq: SINA )
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
Earlier this month, Hotpicks101 touched on Baidu's seemingly unsustainable valuation: "Simply put this stock is priced for perfection right now. If there is any hiccup at all and/or if the market trades lower this stock will get hit hard from these levels. I think a more realistic price is around $70."
While most Fools agree that Baidu is a great business, it's the stock's lofty price tag that our community seems to have trouble with. Thanks in large part to the market share gains fueled by Google's exit from China, Baidu is up a whopping 174% in 2010. More importantly, Baidu's 100-plus P/E represents a massive premium to Google (32.9), as well as Chinese foes Sohu (16.2) and SINA (7.9). While it's true that Baidu may never be cheap, CAPS All-Star TSIF explains why it's not worth finding out:
[S]peculation on what it can achieve in China with Google in trouble with the Chinese government and China's growth rate continue to drive it upward with a P/E above 100. ... There are rare cases where a company's growth supports such metrics, but that company needs to have a moat that's wide. The dotcom bubble in 2000, however, shows us what can happen when the expections get FAR, FAR ahead of the reality and the moat is being showing in a carnival mirror out of proportion. Baidu has burned a lot of people playing them short. I think we're in a bubble.
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