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Why Baidu Stock Jumped 10% Today

By Rich Smith – Updated Jun 16, 2020 at 12:01PM

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It could be a delayed reaction to praise on Monday.

What happened

Shares of Baidu (BIDU 2.64%), the company called the "Chinese Google," are easily outperforming shares of Google's parent today. As of 11:20 a.m. EDT on Tuesday, Alphabet stock was up 1.5% while Baidu was up 7% after approaching a 10% gain earlier in the morning.

Man examines a stock chart superimposed on a Chinese flag

Image source: Getty Images.

So what

On Monday, Baidu stock won praise from analysts at investment bank Mizuho, which investors ignored in the face of news about a new coronavirus outbreak in China.

In a note on TheFly.com on Monday, Mizuho called Baidu's valuation "compelling." As China reopens for business, the bank said, Baidu is seeing offline businesses use its search engine as a way to generate sales leads to help grow their businesses. Baidu's core revenue is also expected to return to growth mode in Q3 2020, and resume double-digit growth in 2021.

Today's pop in Baidu's stock price looks like a delayed reaction to Mizuho's endorsement.

Now what

But is double-digit growth good enough to make Baidu stock a buy? It depends on what numbers you focus on. Hurt by the pandemic, Baidu's trailing profits are so depressed that its trailing P/E ratio is a woefully high 124. Valued on expected forward earnings, however, Baidu costs a more reasonable 20 times earnings.

Double-digit growth could be enough to justify that valuation, but you're going to have to wait a bit to see if Baidu ends up producing as forecast.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool has a disclosure policy.

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Baidu, Inc. Stock Quote
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