Break Out Baby!

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Stock (Symbol) Stock Price

Baidu.com (BIDU)

$84

Data is as of Expected to Report Sector

August 2, 2010

Oct 25

Technology

Company Description
Baidu, Incorporation Formerly known as Baidu.Com, Inc.. The Group’s principal activities are providing online marketing solution, developing and marketing scalable web application software and related services and Internet search solutions. It provides relevant information online, including Chinese language web pages, news, images and multimedia files. The Group also offers query-based online community, Baidu Post Bar.
Sharek’s Take
David SharekBaidu.com (BIDU) is the fastest growing investable stock on the planet.

“Sales of text-based search ads in China are expected to jump from about $1billion now to $4billion by 2012” source: Investors.com

If the Chinese market should go up four-fold in two years then what should BIDU’s revenue do? Same thing (or around that). Now, what does that mean for profits. Well BIDU’s profits should rise faster than revenues. Check out these figures from last quarter:

BIDU Income Statement Fact Sheet
in RMB thousands

2010 Q2 2009 Q2 Chng
Total Revenue 1,913,467 1,096,624 +74%
Total Operating Expenses 942,610 674,648 +40%
Operating Profit 971,784 422,821 +130%

Using the above data as a guide, it is conceivable that BIDU’s profits could go up seven-fold to ten-fold in two years.

One-Year Chart
I gotta calm down…looking at the one-year chart…the biggest change is BIDU’s estimated Long Term Growth Rate has gone up from 42% last quarter to 62% today. So analysts think profits should compound at 62% a year for five years.Profits are clearly now doubling and look to double for at least the next six months — without the help of beating the street. This stock is in Mack Mode.
Profit Growth Earnings Table
Baidu knocked the cover off the ball again last quarter with 119% profit growth, well above the 75% est. Sales rose 76%, faster than the 60% rise a quarter earlier. Sales growth is on fire — BIDU’s sales were WAY higher than anything the company had ever reported. To show how astounding business is, I had to build a table to show how booming business is.

BIDU Revenue
Qtr Rev YOYchng
2009 Q1 $119m +45%
2009 Q2 $161m +37%
2009 Q3 $187m +40%
2009 Q4 $185m +40%
2010 Q1 $190m +60%
2010 Q2 $282m +76%
Beat the Street
BIDU beat the street by 7 cents — thanks Google. Google had trouble with the Chinese government early in 2010, leaving the Chinese market for a little while, then ironing out the differences and re-entering the market. I think that killed Google’s business in China, I don’t see companies trusting the company anymore. The people must be thinking “they left us once already”.
Annual Profit Estimates
Annual Profit Estimates continue to climb — but not as great as last time. 2012 estimates have gone from $2.00 to $3.00 in two quarters.
Future Quarters
Quarterly estimates look fantastic as far as I can see. BIDU should have triple-digit growth for at least three more quarters. These estimates also keep flying higher.
Fair Value
BIDU should be where it is right now, but the stock is in Mack Mode and it just broke out baby. BIDU is $84 and might go to $150 by next year. When?
Year Profits x P/E = Price Upside/Downside
Today $1.38 x 61 = $84  
2010 Fair Value 1.38 x 70 = 97 15%
2011 Fair Value 2.13 x 70 = 149 77%
Ten-Year Chart
I first purchased BIDU when the stock broke out past $9 on 5/11/06. I wanted to hold for the long-term and even held as BIDU fell from $40 to $10 in the bear market of 2008. When BIDU jumped to $18 in early 2009 I sold thinking I could buy it back cheaper — after all it just jumped 80%. I couldn’t, and by the time I got back in it was $43 (10/8/2009). This ten-year chart shows BIDU is really extended, but profits are expected to grow 119% this year. If growth slows watch for a correction.
Power Ranking Bottom Line
Growth Portfolio

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BIDU is now the 2nd best stock in the 17 stock Growth Portfolio. Apple’s (AAPL) has much more upside to fair value but AAPL isn’t breaking out and moving higher — BIDU is. would have loved to put BIDU #1 in this portfolio, but the upside to fair value this year isn’t great.BIDU is currently the best stock in 9 the stock Aggressive Growth Portfolio. Go with the hot hand.
Aggressive Growth Portfolio

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David Sharek David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.