At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Wall Street weirdness
Give Credit Suisse credit for starting out the trading week on a surreal note. Monday morning saw the Swiss banker raise its price target on (NASDAQ:BIDU) by a stunning $50 a share ... and then downgrade the same shares.

As far as the share-price increase, the banker says it's raising its earnings estimates for fiscal 2009 and 2010, and so the price target must follow -- except that Credit Suisse raised its 2009 earnings estimate by only 3% and its 2010 estimate a mere 2%. And I think that fails to explain a 25% increase in the target price.

And then there's the downgrade, which Credit Suisse attributes to Baidu's own failure to bring the new "Phoenix Nest" advertising system fully on line. According to Credit Suisse, once Phoenix Nest replaces Baidu's "Classic P4P" ad program, a burst of "short-term growth" should follow. Credit Suisse's sources, however, tell the banker that three months after its introduction, the new ad program remains "not yet satisfactory," with the result that Classic P4P continues to carry much of the load ... with the further result that the anticipated short-term growth still isn't there.

So in at least one respect, this is a short-term call. Investors are expecting Baidu to produce beaucoup growth in a short period of time. Credit Suisse says it won't. Therefore, the stock should take a hit. But how likely is it that Credit Suisse is right about this?

Let's go to the tape
Pretty darn likely, it seems. Over the three years that we've been tracking this banker's picks, Credit Suisse has racked up an enviable record for accuracy in the Internet Software and Services sphere. Fully 62% of its predictions have come to pass as expected. For still active picks, its accuracy is even better -- 69% -- which explains why the banker is doing so well with picks such as the following.


Credit Suisse Says:

CAPS Says (Out of 5):

Credit Suisse's Picks Beating S&P By: (NASDAQ:SOHU)



168 points




17 points

Omniture (NASDAQ:OMTR)



11 points

In short, if history is any guide, Credit Suisse will probably be proved correct in its prediction that Baidu will soon underperform the market. But what about the longer term? Here, too, Credit Suisse is not terribly optimistic.

Credit Suisse expects Baidu to encounter increased competition as Google (NASDAQ:GOOG) focuses more and more on Chinese search. Meanwhile, Credit Suisse predicts that "vertical search engines," such as those run by Yahoo! (NASDAQ:YHOO), Microsoft (NASDAQ:MSFT), and eBay (NASDAQ:EBAY), will nibble away at Baidu's dominance of the Chinese market and reduce its market share to 46% from its current 59% by 2012.

I agree
While I've no special insight into the Chinese search market, I can do basic math. And the numbers I'm crunching right now tell me that if Credit Suisse is even half right about the long-term trends in China, then Baidu is woefully overpriced.

By my calculations, Baidu shares now sell for fully 70 times the company's trailing profits. Most analysts believe that Baidu will grow at 35% per year over the next half decade -- so right there the stock looks overpriced to me.

Foolish takeaway
But what if these other analysts are trusting in "Phoenix Nest" to keep their growth estimates warm and snuggly? What if Credit Suisse's sources are right, this nest is starting to unravel, and Baidu's market-share dominance is falling apart with it?

Then, Fools, Baidu could fall well short of the 35% growth rate that analysts are proposing -- in which case, the shares will come a-tumblin' as well. Beware.

Baidu, Google, and Sohu are Motley Fool Rule Breakers selections. eBay and Omniture are Stock Advisor recommendations. eBay and Microsoft are Inside Value choices.

Fool contributor Rich Smith does not own (or hold a short position in) any stock named above. You can find him on CAPS, pontificating under the handle TMFDitty, where he's ranked No. 648 out of more than 135,000 members. The Fool has a disclosure policy.