Like Asia, European equities have gotten a lot cheaper compared to historical averages. Another simi...
Baidu: The Google of China
06/12/2014 10:00 am EST
The number 8 has long been considered lucky in China, so it's not surprising to find that our latest featured stock has claimed a phone number ending in 8888 for itself, observes Timothy Lutts, editor of Cabot Stock of the Month.
Whether the phone number helps or not is debatable, but the real story behind Baidu (BIDU) revolves around several other, far more important factors.
Happily, these can be characterized as Story, Numbers, and Chart, or, as Paul Goodwin, the analyst of Cabot China & Emerging Markets Report likes to put it, SNaC.
The story part is that Baidu is the Google of China. Just as Google makes money by charging advertisers to put their ads in front of potential customers in almost every country in world, Baidu does it in China.
Baidu isn't as dominant in China as Google is in the US (and other countries), but it is the leader—and it's almost certain to get a whole lot bigger. And Baidu has been working on improving its competitive position, and that's clearly beginning to pay off—which brings us to the numbers.
Baidu has been growing revenues and earnings every year since it came public in 2005. Even in the tough times of 2009, both revenues and earnings grew 40%!
And now, coming off a relatively slow period last year, revenue growth is accelerating, hitting 59% last quarter. Looking ahead, the growth of consumerism in China almost guarantees that there's far more growth to come.
Last but not least is BIDU's chart. For the first five years of its life, BIDU was a hot stock, trading at nosebleed valuations—its P/E topped 50 at some point in every year until 2012. But, in recent years, it's calmed down a lot.
2014 brought a renewed consolidation phase that took the stock down as much as 23% at the low of the growth-stock correction before it began its current rebound.
Now, it's certainly possible the consolidation will continue. But when I consider the main factors in Baidu's Story, Numbers, and Chart, I conclude that the stock—currently with a P/E of 31—has far more upside potential than down, and thus I feel comfortable giving it a buy right here.
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