Baidu (BIDU) Keeps On Rolling

Baidu, China’s most popular search engine company, reported earnings after the bell tonight and beat the estimates by $.10 per share.  This shouldn’t have been a big shock given the fact that alot of the big tech companies have been doing the same lately.  BIDU’s revenues rose 42% year over year.  In addition, they are estimating their revenues are going to be higher than originally anticipated going forward.  After hours, the stock is up $11 adding on to the $7 it made during the regular trading session.  This company currently has a 30 P/E but they are growing extremely fast.  Just as Google’s growth rate is watched, so is Baidu’s.  As soon as these copanies become too big to grow this fast, the stock will suffer.  But, for now, Baidu keeps on rolling.

The stock is up from $100 this past winter to a price of $224.86 before reporting earnings today.  Is it too late to buy this one?  Below, I’ve put a picture of BIDU from the fall of 2006 until the present (weekly).  You can see that it reached about $425 back at the late 2007 peak.  Since then, it fell dramatically until it bottomed in late 2008 around $100.  I’ve drawn a simple trendline that puts the top of the downtrend line about $275.  That would be $40 more of upside from its current after hours price (another 17%).


Another 17% doesn’t seem out of line especially when we look at the daily picture below.  You can see there really isn’t any reason it can’t get to $275 over the next few weeks. It may have a few pullbacks along the way especially if the stock market were to have a serious correction.  But, as long as the market holds up, BIDU should continue to outperform on a relative basis.  In this economy, investors are looking for companies that are growing fast despite the global recession.  BIDU is one of those companies.

With all of this said, look for a logical stop price for BIDU.  When we’re bragging to our friends on our great BIDU trade, it’s time to re-visit the sell strategy.  It’s volatility is about twice what the S&P 500 is so if we get a 10% pullback, look for at least a 20% pullback.  If that’s too volatile for you, develop the sell strategy right now.  It can be a moving average or a percentage below the current price.  But, keep in mind that BIDU is volatile so it will be easy to get stopped out.  

Technology has really impressed me this quarter and it is certainly helping keep the overall market propped up.  These companies are much leaner and meaner than they were in 2000 during the tech bubble.  As a sector, they have a lot of cash and with the recession, all companies have to utilitize technology to stay effeciient.  That is helping the sales and the earnings.

Disclosure:  I own Baidu for myself & clients.

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2 Responses to “Baidu (BIDU) Keeps On Rolling”

  1. 1 Jessica April 27, 2009 at 6:45 pm

    In the stocks vs bonds chart from John Mauldin, the price of bonds never falls. Is he assuming no company ever goes bankrupted and you always get your principle back? Seems like an overly optimistic assumption to me.

    • 2 keggerss April 28, 2009 at 8:44 am

      That’s not what the chart shows. It’s a relative picture. It shows the 2 versus each other. There have been plenty of times bonds went down (some individual bonds went barnkrupt) and/or underperformed stocks. This picture shows which one is doing better. Also, it’s not mauldin’s assumptions, this is historical facts based on indexes of bonds and stocks.

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