4 Reasons Baidu.com, Inc. (ADR) (BIDU) Is Bottoming Out: Qihoo 360 Technology Co Ltd (QIHU), Google Inc (GOOG)

Page 1 of 2

The number of investors looking to profit from Baidu.com, Inc. (ADR) (NASDAQ:BIDU) downticks is intensifying.

When Nasdaq’s bimonthly update showed that 10.6 million shares of Baidu were being sold short as of mid-February — a 52-week high in terms of pessimism — I was skeptical. “Given the growing record number of speculators betting against Baidu, it also wouldn’t be a surprise to see the stock rally as the result of a short squeeze the next time that the fallen dot-com darling has something good to say,” I concluded.

Baidu.com, Inc. (ADR) (NASDAQ:BIDU)Well, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) hasn’t had anything material to say. The stock is trading a sneeze away from a fresh two-year low. Meanwhile, the worrywarts are piling up. Nasdaq’s latest short tallies are out, and Baidu closed out February with nearly 11.6 million shares sold short, a million more shorted shares than it had just two weeks earlier.

Clearly, the market isn’t too happy with Baidu as an investment these days, but let me go out on a limb and suggest a few reasons Baidu may be bottoming out right now.

1. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has never been cheaper
You have to go back to the summer of 2010 to find the last time China’s leading search engine was trading below the mid-$80s. Baidu.com, Inc. (ADR) (NASDAQ:BIDU) earned $3.02 a year later, so its forward earnings multiple — using yesterday’s close of $87.65 to make this an even comparison — would’ve clocked in at a seemingly rich 29. However, that proved to be a bargain. The stock nearly doubled a year later.

Baidu keeps growing. It earned $4.79 a share last year. Analysts see a profit of $5.40 a share this year and $6.77 come 2014. Baidu’s forward earnings multiple today is actually less than 13.

One can argue that Baidu’s growth has decelerated, and that’s fair. However, it’s growing a lot faster than most of the other proven growth stocks with similar multiples.

2. The Qihoo 360 Technology Co Ltd (NYSE:QIHU) threat is overrated
Baidu’s shares have been weak since The Qihoo 360 Technology Co Ltd (NYSE:QIHU) introduced its own search engine this past summer.

Qihoo 360 is best known for its Web browser and suite of security software. It decided to boot Google Inc (NASDAQ:GOOG) as its default search engine, rolling out a homegrown platform that quickly ballooned to between 10% and 15% of China’s search market.

Baidu continues to command roughly two-thirds of China’s search market, serving up 5 billion search queries a day. This battle isn’t any more intense than what we see between Google and Bing in this country, but investors are still nervous.

I’m not dismissive of Qihoo 360 Technology Co Ltd (NYSE:QIHU). I’ve even suggested that investors buy both companies. However, Qihoo 360′s presence in search hasn’t warranted the sharp sell-off at Baidu.

Yes, Baidu put out a poorly received quarterly report in its first complete quarter, competing against Qihoo 360. But revenue still climbed a healthy 42%, and Baidu’s guidance for the current quarter calls for 38% to 43% in year-over-year revenue growth.

Oh, and a Beijing court is paying attention to Baidu’s claims that Qihoo 360 Technology Co Ltd (NYSE:QIHU)’s foray into search consists of crawling and copying Baidu’s content.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!