3. Baidu may be the best bet in search
Something interesting happened this month, as Google Inc (NASDAQ:GOOG) raced to new all-time highs last week, and Baidu fell after Monday night’s report. Both stocks now command a forward earnings multiple of 14. Google’s ratio is actually slightly higher if we begin digging to the right of the decimal.
Is Google better than Baidu? As a company, of course Google is better. Big G is the global leader in search. However, in terms of valuation, it should be Baidu that receives the premium. Baidu is expected to grow its revenue next year at double Google’s growth rate. The battle for earnings growth is closer, given Baidu’s margin contraction; but Baidu still wins there, with a 25% expected growth spurt versus Google at 17.
This doesn’t mean that Google isn’t a great investment. Big G is going to be a winner, even at today’s new highs. However, Baidu is growing considerably faster.
Yandex NV (NASDAQ:YNDX) is the third largest publicly-traded search company. Yandex is growing quickly as the top dog in Russia and other Eastern European countries. However, its forward earnings multiple is in the high teens, even though it’s growing at a comparable rate to Baidu.
Yes, Yandex is another great growth stock that will serve investors well. The point here is simply that Baidu is the better value of the three companies.
Putting it all together
It’s easy to lose one’s enthusiasm for Baidu. Investors take on substantial risks in buying into faraway China, and the world’s most populous nation has a history of controlling personal freedoms that include online usage.
However, Baidu has come too far, and China knows that it stands to lose credibility as a global business partner if it should ever tighten the clamps on the information superhighway.
Baidu isn’t perfect. It’s just cheap.
The article 3 Reasons to Buy Baidu Under $100 originally appeared on Fool.com and is written by Rick Aristotle Munarriz.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, Sohu.com, and Yandex. The Motley Fool owns shares of Baidu and Google.
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