With shares of Baidu (NASDAQ:BIDU) trading at around $94.72, is BIDU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
Baidu is an easy winner for search in China: it's gaining in ground in mobile, and it’s now also the largest online video platform in China. Despite Q1 margin declines, margins are still solid, and year-over-year revenue and earnings were impressive. However, revenue and earnings declines on a sequential basis. That makes the story a little more difficult to read. In these situations, it's often better to look at the big picture. And in this case, revenue and earnings have consistently improved on an annual basis. In addition to these positives, valuation is fair. Baidu is trading at 19 times earnings while the industry average is 21 times earnings.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!On the negative side, costs have also increased. These costs have related to infrastructure, marketing, R&D, and online video platform. Looking ahead, Baidu will increase spending to improve its mobile position. Another negative is increased competition. Current competitors include Sina Corporation (NASDAQ:SINA), Sohu.com Inc. (NASDAQ:SOHU), and Qihoo 360 Technology Co. Ltd. (NYSE:QIHU).
The chart below compares traffic performance. Pageview-Per-User, Time-On-Site, and Bounce Rate (one page per view) are all based on the past three months. Note: Weibo.com is owned by Sina.com, and 360.cn is owned by Qihoo.com.
| Global Rank | China Rank | Pageviews-Per-User | Time-On-Site | Bounce Rate | |
| Baidu.com | 5 | 1 | -8.73% | -7.00% | +2.00% |
| Sina.com | 3444 | 658 | -3.52% | -7.00% | +5.00% |
| Weibo.com | 27 | 6 | -4.73% | -3.00% | +3.00% |
| Sohu.com | 50 | 10 | -4.26% | -2.00% | +6.00% |
| 360.cn | 7 | 12 | +4.60% | +18.00% | +3.00% |
The chart below compared fundamentals for Baidu, Sina, and Sohu.
| BIDU | SINA | SOHU | |
| Trailing P/E | 19.59 | 125.68 | 29.91 |
| Forward P/E | 15.20 | 32.55 | 18.64 |
| Profit Margin | 44.21% | 5.88% | 7.71% |
| ROE | 44.08% | 2.81% | 14.13% |
| Operating Cash Flow | N/A | N/A | 376.06M |
| Dividend Yield | N/A | N/A | N/A |
| Short Position | N/A | 2.60% | 8.30% |
Let's take a look at some more important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
Baidu has performed well over three-year and one-month time frames. However, it hasn’t performed well over a one-year time frame or year-to-date. Most importantly, it has underperformed its peers for every time frame listed below.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| BIDU | 9.59% | -5.55% | -17.90% | 35.06% |
| SINA | 28.77% | 18.62% | 12.16% | 64.15% |
| SOHU | 31.30% | 33.08% | 50.21% | 42.21% |
At $94.72, Baidu is trading above its 50-day SMA, but still below its 200-day SMA.
| 50-Day SMA | 88.57 |
| 200-Day SMA | 95.03 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for Baidu is weaker than the industry average of 0.10, but it still qualifies as normal.
| Debt-To-Equity | Cash | Long-Term Debt | |
| BIDU | 0.40 | 5.39B | 1.90B |
| SINA | 0.00 | 681.93M | 0.00 |
| SOHU | 0.19 | 951.67M | 270.50M |
E = Earnings Are Strong
Revenue and earnings have consistently improved on an annual basis.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 461 | 652 | 1,171 | 2,248 | 3,580 |
| Diluted EPS ($) | 0.44 | 0.63 | 1.53 | 3.02 | 4.79 |
As stated earlier, year-over-year numbers are impressive, but sequential numbers are cause for concern.
| Quarter | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 | Mar. 31, 2013 |
| Revenue ($) in millions | 677.10 | 858.80 | 994.60 | 1,017 | 961 |
| Diluted EPS ($) | 0.85 | 1.24 | 1.37 | 1.28 | 0.95 |
Now let's take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
T = Trends Might Support the Industry
The industry has been performing well as of late, but that could be said about most industries throughout the world. The question is what the future holds. Nobody knows for sure, but as long as Chinese economic data isn't regulated, numbers will continue to be manipulated.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Conclusion
Baidu is the largest search Internet Information Provider in China. That's the good news. The bad news is that competition and costs have increased. Any numbers coming out of China should also be looked at under a microscope. Simply looking at real exports and imports, the numbers don't add up. Exports have been over-invoiced, and imports have been under-invoiced. This has led to a manipulated GDP number. Therefore, there is potential for a significant slowdown in Chinese stocks if the truth is revealed. Then again, this has been going on for a long time. Who knows? Maybe it can last forever.
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