Are you willing to seek out a ground-floor opportunity in growth even if you have to go to the end of the planet to find it? If so, let me introduce you to Baidu.com
You may not know a whole lot about the world's fourth-most popular website -- and the largest in China -- but stay with me.
Baidu went public at $27 last year and the stock has gone on to more than quadruple in price. Some jaded investors may be feeling a bit dizzy at these heights, but let's put things into perspective. Baidu is the search engine of choice in the world's most populous nation, yet it would still have to turn into a 50-bagger from here to approach the current market cap of Google
Mentioning Google is important. A lot of speculative froth during last year's successful market debut was that Baidu was China's Google, but now that Google is entrenched in China, what has happened? Surprisingly enough, Baidu is smoking Google.
Over the past year, Baidu's market share has grown at the expense of Google's. In the economically explosive city of Beijing, Baidu has gone from commanding 52% of the market to watching over a thicker 65% slice since last year. Google's market share has shriveled to a mere 21% from 33%. I love Google, but if you can set your patriotic enthusiasm aside for a moment, there's a voice worth heeding, and it speaks Mandarin.
Beyond the market-share gains
You are no doubt inherently familiar with the three websites that, Alexa claims, draw larger worldwide traffic: Google, Yahoo!
Baidu has done what Google and Yahoo! have in transforming search-engine superiority into a sticky and diversified online empire. The difference here is that Baidu is doing this in a country with the world's second-largest Internet community, even though just a tenth of its citizenry is online.
Barring political setbacks -- a natural concern, of course -- it is China's destiny to grow financially. China's economy is growing at a better than 10% annualized clip over the past four years, yet per-capita income is still a pittance. Time will help settle the balance. Isn't this the end of the seesaw that you want to be sitting on?
Valuing a Baidu
Baidu is overpriced! You are bound to get that from rear-view mirror investors. They see a trailing earnings multiple of 150 and it triggers a bit of acrophobia. They seem to ignore that this is also the company that grew profits by better than 900% this past quarter.
Baidu is growing so quickly that the cure to lofty P/E ratios is to simply turn a few calendar pages. At a recent price of $115, the shares are trading at 124 times this year's bottom-line forecast and just 66 times forward earnings, if we look out to 2007. Analysts are just starting to piece together their 2008 profit targets, and if we go by WR Hambrecht's $3.15 target in net income per share, Baidu's P/E plummets to 36.5.
It's also a safe bet that Wall Street's expectations may inch higher. They have in the past, and Baidu has blown away estimates in all but one quarter since going public.
So where do you stand when it comes to ground-floor opportunities? Still willing to travel to China to find the best overseas investment of 2007? If you agree with me, simply head to our new Motley Fool CAPS community intelligence database and rate Baidu outperform. And if you disagree, let us know that, too, by rating Baidu underperform. To get going and make your voice heard, click here. Based on your thoughts, we'll declare the best international stock of 2007 early next week.
Go here for the complete list of contenders in our CAPS international-stock tournament.
Longtime Fool contributor Rick Munarriz has been to mainland China just once, but he's longing to brush up on Mandarin and make another go of it. He does not own shares in any of the companies mentioned in this story. Rick is also part of the Rule Breakers newsletter research team, which recently recommended Baidu. Yahoo! has been singled out to Stock Advisor readers, and Microsoft is an Inside Value pick.The Fool has a disclosure policy.