, Inc. (ADR) (BIDU): Shares Are Just Too Cheap

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Valuations for internet technology companies are literally all over the place. On one end of the spectrum sits LinkedIn Corp (NYSE:LNKD) and, Inc. (NASDAQ:AMZN)—fast growing firms with sky-high PE multiples and tremendous credit given to the long run. On the other end, we have Apple Inc. (NASDAQ:AAPL) generating fantastic amounts of free cash flow, and trading with single-digit forward PE multiples. Chinese search giant, Inc. (ADR) (NASDAQ:BIDU) falls closer to Apple Inc. (NASDAQ:AAPL), and we at Valuentum think shares look incredibly cheap at current levels. Let’s take a closer look at the search giant., Inc. (ADR) (BIDU)

Valuation, Inc. (ADR) (NASDAQ:BIDU)’s valuation on a discounted cash flow basis looks extremely reasonable. We estimate shares to be worth $108-$200, with $154 representing our mid-point. This equates to roughly 83% upside from current levels! Our valuation includes a relatively steep year-over-year decline in operating margins, as well as a material slowdown in earnings growth.

On a relative valuation, Baidu trades at a discount to peers like Facebook Inc (NASDAQ:FB) and LinkedIn Corp (NYSE:LNKD), which seems justifiable based on the shifts toward mobile and social advertising. However, the Chinese search giant also trades at a discount to Google Inc (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO). Google continues to grow at a brisk rate, and is one of Valuentum’s Best Ideas Newsletter constituents, but we think the future growth of Baidu looks far more compelling than Yahoo.

China’s Google, Inc. (ADR) (NASDAQ:BIDU) holds a market leading position in search, and many have dubbed it “China’s Google.” Although Google’s proven itself to be a formidable foe in many global search markets, the Chinese government banned Google over censorship issues, ensuring Baidu faces relatively little competition. Google Inc (NASDAQ:GOOG) accounts for less than 5% of search market share in China. Qihoo 360 Technology Co Ltd (NYSE:QIHU), a software security and search competitor, as well as Sougu, Soso, Bing, and Yahoo! Inc. (NASDAQ:YHOO) all hold less than 10% market share.

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