I am bullish on Baidu (BIDU). The stock has decreased 35.4% over the past six months, presenting a good opportunity for buy-the-dip investors.
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Baidu operates China’s biggest search engine portal, with over 74% of the market share market share in desktop and mobile search.
BIDU is currently trading at a discount from its 52-week high of $354.82, suggesting that this could be a good time to go long on the stock. (See Baidu stock charts on TipRanks).
Undervalued but Highly Profitable
China has a growing digital advertising industry, worth $97 billion a year. BIDU therefore deserves a higher valuation than its forward P/E of 17.1x.
Search engine peers Google (GOOGL) and Microsoft (MSFT) have forward P/Es of 28.2x, and 33.4x, respectively. Google’s net income margin is only 28.5%, compared to Baidu’s TTM net income margin of 37.2%.
Growth Drivers from Cloud Computing and AI
Baidu is one of the world’s leading AI companies. The cloud AI software market is growing at a 20.3% CAGR. This niche business will be worth $13.1 billion by 2026.
BIDU has a strong tailwind from the fast-growing (17.5% CAGR) $371.4-billion global cloud computing industry. Baidu’s portfolio of services is as comprehensive as Microsoft’s Azure platform.
Self-Driving Taxis and Cars
Baidu is already operating the first paid self-driving taxi in Beijing. Apollo Go robotaxis tout Level 4 autonomy.
The global robotaxi industry was worth $450 million last year. It is growing at a 59.2% CAGR. It will have a market size of $45.4 billion by 2030.
Baidu could become a serious rival to Tesla (TESLA) in China and Asia. Tesla’s net income margin is only 5.1%, and yet it touts a forward P/E of 114.7x.
Tesla has no Level 4 commercial self-driving electric car or robotaxi service.
Robust Financial Numbers
Baidu currently holds $26.2 billion in cash. This is greater than its total debt load of $13.81 billion. Its short-term assets of $30.85 billion is higher than its short-term liabilities $13.14 billion.
The company’s net operating cash flow is $4 billion, which is enough to cover interest payments of its short-term debt of $468.4 million.
Baidu has a Piotroski F Score of 7.
Wall Street’s Take
Wall Street analysts consider Baidu a Moderate Buy, based on 11 Buys, one Hold, and two Sells. The average BIDU price target is $249.58, indicating 58.7% upside potential.
Conclusion
The relative undervaluation of Baidu against Google and Microsoft is a golden opportunity. The company has multiple catalysts from its self-riving cars, cloud computing, and AI services.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
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