Chinese search engine Baidu (
) 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"]
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 (
) 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
In terms of competition, Baidu's only real threat comes in the
form of Google (
). 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
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
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