Baidu: Searching for growth in China

Despite Wall Street skepticism, this remains one Chinese stock worth buying.

By TheStockAdvisors Nov 6, 2012 2:52PM
China copyright Lawrence Manning, CorbisBy Geoffrey Seiler, Bullmarket.com

Chinese search provider Baidu (BIDU) reported its third-quarter results last week; the top line grew at its slowest pace in three years and its fourth-quarter guidance was below Wall Street's expectations.

That aside, Baidu still reported results that other companies would envy. Revenue grew by 50% and profit by nearly 60% as the company added a record number of business customers. 

Meanwhile, Internet usage and Web search has a long runway in China. The country has more people using the Web than the U.S., yet only about a third of its population has an Internet connection.

In addition to dealing with a slowdown in China's economic growth, Baidu faces new competition from Qihoo 360 Technology, maker of China's most popular Web portal.

However, concerns about Qihoo strike us as a bit overdone. Baidu is so dominant in the China search market -- with a 78.6% market share -- the entrance of a smaller competitor is unlikely to dramatically alter its position.

Baidu still has a lot of opportunity in front of it.  The exploding growth of smartphones in China dramatically increases the size of the potential market. Navigating the switch from a PC-based search business to a mobile one is daunting, but no more daunting for Baidu than it is for Google in the U.S.

We think that growth potential more than offsets any concerns investors might have about slower economic growth in China as a whole and increased competition. Excluding its $8.44 per share in net cash and investments, Baidu now trades at a bit above 16 times the 2013 EPS consensus, making it a fairly inexpensive growth stock in our view.

Investing in China has its risks, but Baidu is one of the few Chinese stocks we'd consider buying, especially down at these levels.

More from TheStockAdvisors.com
1Comment
Nov 6, 2012 3:06PM
avatar

It is a shame companies are not looking for growth in America. We need a change of leadership.

I am voting Romney/Ryan straight Republican ticket to get done what should have been done in the past 4 years.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
266
266 rated 2
452
452 rated 3
702
702 rated 4
671
671 rated 5
604
604 rated 6
640
640 rated 7
495
495 rated 8
267
267 rated 9
158
158 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ABBVABBVIE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
LUVSOUTHWEST AIRLINES CO.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.