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Time to buy Baidu’s share price after firm relegated from China tech elite?

Chinese web search and AI company Baidu’s [BIDU] share price has had a tough year marked by consistent losses, which, since announcing its first loss since it went public in May have only accelerated. Baidu’s price has now fallen by 35% in 2019.

By the end of August, the company had also lost its spot among China’s five most valuable internet companies after e-commerce startup Pinduoduo [PDD] received an 8.7% share price bump on 29 August.

And while the firm continues to grapple with a slowdown in China’s economy, as well as growing competition from app-based businesses for advertising revenue, investors are growing cautious.

Despite this, its Q2 earnings show that the company managed to deliver a profit beat, and that another is expected when Baidu reports Q3 results in October. Does this make the stock a ‘buy’?

 

The stock offers value

Baidu has a trailing P/E ratio of just 8.19 and a forward P/E ratio of 16.57, according to Yahoo Finance, suggesting that now, on a price-to-earnings basis at least, the stock may well be undervalued. Shares also carry a price-to-book ratio of 1.5, another indication that investors could be undervaluing the stock; this point becomes particularly apparent when compared to competitors such as Google and Tencent, with ratios of 8.66 and 4.35 respectively.  

 

 

The web search company has an EPS of 6.55, a growth of 48.9% this year, so it may be the best time to buy, particularly as the company is expected to continue to beat expectations in coming months.

The predicted price-to-earnings growth would still keep the ratio below the global tech industry average however, which currently holds a forward P/E of 26.50.

 

Revenue is up

Baidu’s share price had a bright spot in mid-August after it beat analyst estimates for its Q2 earnings, causing its price to pop by 4.3% after the announcement, building on gains through the week in anticipation of earnings.

The company posted a revenue of $3.73bn, beating estimates of $3.65bn. The search company also posted a second quarter net income of $351m, or $0.96 per share, compared to a loss in the same period last year.

The company also has plans for future growth, a lot which are based around extended services from its traditional web search business. Baidu’s app received 188m daily active users, an increase of 27% from the prior year, for example. As more users log on to these services, the potential for increased monetisation grows too.

188million

Baidu's daily active app users

  

Additionally, Baidu is looking to expand its ‘DuerOS’ voice assistant across smart speakers and cars, to grow its footprint.

 

Q3 expectations

The company expects to report earnings per share of $1.76 for Q3, down 36.46% from the prior-year quarter. Meanwhile, the Zacks Consensus Estimate is projecting net sales of $4.02bn, down 2.08% from the year-ago period. The firm is expected to report on 29 October.

 

Market cap $39.184bn
PE ratio (TTM) 8.60
EPS (TTM) 12.83
Quarterly Revenue Growth (YoY) -3.80%

Baidu share price vitals, Yahoo Finance, 11 September 2019

 

Consensus

Zacks Rank currently states that Baidu is sporting a ‘hold’ rating. Based on 14 Wall Street analysts offering recommendations, TipRanks reports 8 hold a ‘buy’ rating, 6 with a ‘hold’ rating, while 0 offer a ‘sell’ rating.

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