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.
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.
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.
|PE ratio (TTM)||8.60|
|Quarterly Revenue Growth (YoY)||-3.80%|
Baidu share price vitals, Yahoo Finance, 11 September 2019
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.
Disclaimer Past performance is not a reliable indicator of future results.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.