A pair of analysts put out updated notes on Baidu (BIDU -2.06%) on Friday. The bad news is that the two Wall Street bulls slashed their price targets on the stock. Hans Chung lowered his price target for China's leading search engine from $160 to $148. Tian Hou at TH Data Capital cut even deeper, dropping his price goal from $220 to $135.

The good news here is that starting lines matter. With Baidu shares crashing below $100 this week and hitting a six-year low on Friday, the new price targets suggest upside of 53% and 40%, respectively, off Friday's lows. Both analysts are sticking with their bullish ratings on the stock, and are cautiously optimistic ahead of Baidu's second-quarter results that will roll out later this month.

Baidu's research advisory board posing happily in front of a Baidu building.

Image source: Baidu.

Things can only get better

Baidu's not at its best these days. Revenue slowed to a 15% uptick in its latest quarter -- climbing 21% if you back out businesses disposed over the past year -- and that pace is expected to decelerate sharply for the second that quarter that ended in June. Baidu's guidance calls for its top line to grow by 1% to 6% for the quarter if you exclude previously announced divestitures. 

Hou at TH Data Capital is realistic. He feels that revenue will clock in within the consensus, but he sees slightly better margins at Baidu than his peers are modeling. Hou joins Chung at KeyBanc in their concern that China's slowing economy and trade war tension will weigh on online advertising budgets in the near term. Though it's hard to get a read on advertising demand until some of the clouds clear, it's telling that both analysts chose to reiterate their bullish calls with a pivotal financial update from Baidu now just 10 days away. They are lowering their price targets to realistic levels given the new normal, but they're not turning their backs on Baidu as a winning investment. 

The pessimism is thick. Short interest continues to be at its highest level in years with more than 10 million shares sold short this summer. Top-line growth has derailed, and the scene is uglier on the bottom line with margins contracting. A lot of Chinese stocks have started to bounce back. Baidu, however, has been left behind. It's no longer a market leader in the market's eyes, but that could be a mistake.

Baidu still dominates its once-lucrative niche, and that will still be there once advertisers feel more comfortable with opening up their billfolds. Baidu is also investing to achieve market leadership positions in artificial intelligence and streaming video, and those bets should pay off in a couple of years. 

In the meantime, Baidu's once-lofty earnings multiple has dropped into the teens on a forward basis and the pre-teens if we look out to 2021. While trying to time the bottom on Baidu is understandably dangerous, there are a lot of catalysts that should pay off once the rubble settles. The stock is down, but you can't count Baidu out given its historical pedigree and its long-term potential.