Baidu's Baffling Undervaluation Makes It a Buy

In the current inflated stock market, cheap growth tech stocks are hard to find. Growth stocks in the tech sector usually command a trailing P/E of 25x-30x. Given the valuations across the sector, I am surprised that Chinese Internet giant Baidu (BIDU) is trading at just 12x trailing earnings. Given that Baidu is still expected to grow at a rapid speed, I think the stock is a great buy at current levels.

Baidu is betting big on O2O service 

2015 was a volatile year for Baidu and the company is off to a bad start this year as well.
In the latest reported quarter, Baidu shared earnings per share of $1.22, surpassing estimates by a considerable margin of $0.17. The company’s revenue came in at $2.75 billion, $20 million greater than the estimates.

In spite of sales that surged 10.2 percent, the company’s net income fell 36 percent year over year due to sterner regulations surrounding its advertising business and higher taxes crumpled its earnings. This resulted in the most substantial profit decrease on record since Baidu became a publicly traded company.

Baidu is basically the Google of China, and just like Google, it is investing massively in developing driverless car technology. The company is formerly testing self-driving vehicles on China’s public roads, with the objective of introducing self-driving public transportation in the coming two years.

Furthermore, Baidu has a gradually increasing list of driverless car patents in the country. Not only this, the company also gets full support from the Chinese government to test its self-driving vehicles. This will eventually drive China ahead of the United States in the driverless car division.

However, Baidu has not revealed its tactics regarding how it will make money from its driverless car market, but it is certainly an amazing option for stockholders and is less expensive compared to most tech stocks.

Apart from this, in the case of long term, O2O could be a massive growth driver for the company as it continues to spend huge money on O2O. With O2O, the company is seeking to keep internet users within its space for an even longer duration.

In spite of just providing customers with the information they strive for and then directing them to a final site to complete their service transaction, O2O connects the customers with offline services, permitting the company to gain huge advantages from these transactions and possibly exposing the user to more company grounded ad engagements.

All in all, the company’s prospects look bright going forward and the stock’s undervaluation makes it a prime pick.
Published on Aug 16, 2016
By Akshansh Gandhi

Copyrighted 2020. Content published with author's permission.

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