The trend is not the friend for Baidu (BIDU 1.81%) shareholders. China's iconic search engine finds its stock trading 20% lower in the otherwise buoyant 2024, off a blistering 33% over the past year. Many Chinese investments have fallen out of favor lately, but most of them are faring better than the country's original dot-com darling.
Baidu is down, but it doesn't mean it's out. Let's go over three reasons why the stock that is now 73% below its early 2021 all-time high could be ready to bounce back this year.
NASDAQ: BIDU
Key Data Points
1. Baidu is a bargain
It's hard to sing Baidu's praises as a growth stock when it's a currently a shell of what it used to be. It has posted single-digit or negative revenue growth in four of the last five years. Its trailing revenue is just 24% higher than it was in 2018.
I'll get to those shortcomings in the third section, but let's start by pointing out how cheap Baidu is as an investment right now. Baidu is currently trading for 13 times trailing earnings on a reported basis. The multiple drops below 9 if we shift to adjusted earnings. The multiple is slightly lower if you look out to next year's forecast.
This isn't the only reason that Baidu is undeniably cheap. Thanks to its strong net-cash position, Baidu's market cap of nearly $34 billion drops to an enterprise value of $24 billion. Yes, that low earnings multiple gets even lower when enterprise value taps in as the numerator. Baidu's trading at an enterprise value that is just 1.3 times its trailing revenue, a lot lower than most tech leaders.
Image source: Getty Images.
2. It's not losing the beat
Consistently exceeding expectations is a given for growth stocks that are in favor. It's not often you see a company that is in the market's doghouse consistently beating Wall Street pros.
Baidu may not be a drum machine, but it's definitely a beat maker. Try on its last five reports for size.
| Quarter | EPS (Estimate) | EPS (Actual) | Beat |
|---|---|---|---|
| Q1 2023 | $1.72 | $2.25 | 29% |
| Q2 2023 | $2.31 | $3.08 | 33% |
| Q3 2023 | $2.32 | $2.86 | 23% |
| Q4 2023 | $2.48 | $3.04 | 23% |
| Q1 2024 | $2.17 | $2.74 | 26% |
Data source: Yahoo! Finance. Table by author.
Baidu keeps landing ahead of market estimates when it comes to adjusted earnings. It's not even close. The positive surprises have clocked in at least 23% higher than the analyst consensus for five consecutive quarters. The strong reports don't line up with the stock chart over the past year, and that's an opportunity for potential buyers.
3. This could be the next great AI stock
The market doesn't see Baidu as an artificial intelligence (AI) stock. Of course. It would be rallying. Its growth rate would be more inspiring. It doesn't mean that it's not happening.
Two months ago, I wrote that Baidu was the cheapest AI stock I know. The shares are even cheaper now. Baidu doesn't have a problem trying to position itself in this hot niche. It mentioned "AI" in its latest earnings call 62 times. Yes, I counted.
This isn't exactly Baidu hopping on the buzzword bandwagon. It's been developing machine learning, robotics, computer vision, and autonomous driving tools for years. This was AI before AI was cool.
Baidu just hasn't been able to capitalize on its early lead in an emerging industry to become a growth star again. It's been seven years since Baidu topped 20% top-line growth.
There are obviously risks when it comes to investing in international stocks in general, and those concerns take on an additional layer of volatility when you narrow the focus to China. Baidu isn't perfect, but the valuation is too imperfect right now for a company that has been proving itself to Western investors since going public 19 summers ago. Betting against a Baidu bounce could be a mistake.
