Baidu: Emerging market stock of the day

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Chinese search engine Baidu ( BIDU , quote ) has struggled over the past few months, losing roughly 30% of its market capitalization. Is now the time to jump back into this emerging market tech giant?

[caption id="attachment_57355" align="alignright" width="300" caption="Baidu could be interesting at these levels"] Image courtesy hwanghsuhui: http://commons.wikimedia.org/wiki/File:Baidu_Campus.jpg [/caption]

Although Baidu's recent decline is somewhat disconcerting, this could prove to be a decent entry point for investors with a long-term time horizon because the drop had little to do with the fundamentals of Baidu itself.

While some of Baidu's poor performance could be attributed to the introduction of Qihoo 360's ( QIHU , quote ) entry into the search engine space, it remains to be seen how sustainable their growth will be. With Baidu's entrenched position, ingrained functionality into a number of smart devices, and Qihoo's lack of a discernibly better product, it's unlikely that Baidu's dominant position in the search space will be too adversely affected.


In terms of competition, Baidu's only real threat comes in the form of Google ( GOOG , quote ). While Google has more sophisticated algorithms, unless Google and the Chinese government come to some sort of understanding over censorship in the near future, it's unlikely that the firm will make a serious dent in the Chinese search market, at least in the short-to-medium term.

Baidu, along with most other Chinese ADRS, have underperformed recently as the result of downward pressure as the SEC looks to step up pressure on certain Chinese accounting practices. However, unlike certain Chinese small-caps like RINO that were sham companies, Baidu is very much real company making real money. Further, unlike, for example, many state-owned Chinese companies, Baidu's primary listing is in the United States; while this does not obviate the risk of dishonest accounting, it is a reasonable assumption that Baidu's accounting is more likely to comply with American standards than certain other Chinese companies.

That being said, Baidu could see short-term downside risks if another Chinese company were to fall afoul of the SEC. Assuming that Baidu is not implicated, this could be a further buying opportunity in the stock.

For those with a longer-term perspective, Baidu offers compelling value at these levels -- its forward P/E is less than 16, significantly cheaper than competitors Qihoo and SINA ( quote ). If Chinese stocks have indeed found their bottom , the stock can continue above its 20-day moving average, and move through the psychologically important 100 barrier, Baidu could trade much higher in the near future.

Disclosure: Author is long BIDU calls

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , International , Stocks

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