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Why Baidu Is Poised to Bounce Back

By Brian D. Pacampara, CFA - Apr 23, 2013 at 11:12AM

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Market-trouncing returns could be written in this 4-Star.

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 (BIDU 1.95%) has earned a respected four-star ranking.

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

Baidu facts

Headquarters (founded)

Beijing (2000)

Market Cap

$30.0 billion

Industry

Internet information providers

Trailing-12-Month Revenue

$3.6 billion

Management

Co-Founder/Chairman/CEO Yanhong Li

CFO Jennifer Li

Return on Equity (average, past 3 years)

51.6%

Cash/Debt

$5.2 billion / $1.9 billion

Competitors

SINA 

Sohu.com

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

On CAPS, 89% of the 5,372 members who have rated Baidu believe the stock will outperform the S&P 500 going forward.   

Just yesterday, fellow Fool Simon Erickson (TMFInnovator) summed up the Baidu bull case for our community:

- Success begets success. Baidu is the dominant search engine in China, with nearly 3/4 of unique search visits. As Google proved in the US, users will gravitate to the most efficient product that provides the best search results. This, in turn, attracts more advertising revenue. The network effect, in full effect.

- Baidu has had a successful initial campaign into mobile, accounting for ~50% of mobile search in China. They are investing heavily in this platform, trying to maximize user experience. Deals with China Telecom and China Unicom have been negotiated for Baidu to be the default search provider.

Risks include potential up-and-coming search competitors. ... A friend of mine living in China said that [Baidu] was the more "formal" search engine, but that there were in fact others that users would sometimes go to instead (the example he gave was to find pirated mp3s). From at least this one perspective, it seems that Baidu has a strong business reputation for search in China.

Consensus estimates for 2013 earnings are $5.34, which puts Baidu's forward P/E at only 16. But this is a growth company with tons of potential ways to monetize (optionality), and I believe the valuation to be far too low.    

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Stocks Mentioned

Baidu, Inc. Stock Quote
Baidu, Inc.
BIDU
$119.22 (1.95%) $2.28
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,304.44 (-0.71%) $-16.57
China Unicom (Hong Kong) Limited Stock Quote
China Unicom (Hong Kong) Limited
CHU
China Telecom Corporation Limited Stock Quote
China Telecom Corporation Limited
CHA
SINA Corporation Stock Quote
SINA Corporation
SINA
Sohu.com Inc. Stock Quote
Sohu.com Inc.
SOHU
$14.73 (2.01%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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