Stock Analysis & Ideas

BIDU Stock: Chinese Tech Rout Presenting Opportunity?

China’s regulatory crackdown has inflicted immense pain to the wider Chinese tech sector, and namely mega-cap stocks such as Baidu (BIDU). This crackdown has gone on for over a year now, and investors appear to be growing weary of China tech names.

Such a view is understandable. Looking across this sector, there’s not a lot to get particularly excited about. A U.S.-China trade war led to deteriorating relations between the two global powerhouses.

This led to speculation that Chinese stocks could be de-listed from U.S. exchanges. Furthermore, continued aggression from autocracies such as Russia toward Ukraine make the prospects of investing in China-based companies difficult for U.S. investors.

That’s a lot to unpack, but it’s fair to say that the investing environment in China is not favorable right now.

I remain highly bullish on Baidu in this environment, and view the recent decline in BIDU stock as a big-time opportunity.

Historical Performance of BIDU Stock 

Let’s start with how Baidu has done recently.

Looking at Baidu’s stock price from 2021, one could say that there’s a lot to be desired for investors that have stuck with this stock. Since its peak early last year, BIDU stock has lost about 50% of its value in essentially one year. With stock price performance like this, one might expect to see deteriorating fundamentals for this company.

This doesn’t appear to be the case.

In fact, Baidu has made impressive progress on multiple fronts. The company has maintained its leading position in Internet search in China. (Baidu owns approximately 70% of the Chinese search market).

Additionally, the company’s financials appear strong. Baidu has consistently reported annual cash flows around $3 billion per year since 2015. For a company that’s valued at only $53 billion at the time of writing, that’s a reasonable 15-year payback period simply from cash flows, assuming this continues.

Cash flow yield aside, Baidu’s cash position is also something a number of experts have harped on. Currently, Baidu holds approximately 50% of its market capitalization in cash.

On a net basis, this number is around $15 billion, or more than 25% of its market capitalization, in cash. That’s an incredible reality, and something investors should look for as solace when considering investing in this company.

Baidu: 5 Years Down the Line

Looking five years down the road for Baidu, there’s certainly a lot to like for this company. Baidu’s outlook screams growth, driven by a number of unique operating segments that don’t get enough attention.

Perhaps that’s because the vast majority of Baidu’s revenue comes from its Search business. However, a number of other businesses within the Baidu model are worth noting.

There’s the company’s Autonomous Vehicle segment and AI segment that often get most of the glory. However, one recently hot sector Baidu happens to be increasingly involved in is the metaverse.

The company’s three-day annual flagship developers’ conference, Baidu Create 2021, was virtually hosted on XiRang, Baidu’s metaverse app. That conference was China’s first-ever tech event held in the metaverse. XiRang can host 100,000 simultaneous online attendees in a single space.

As investors look for “out of the box” metaverse plays, Baidu could be a compelling stock. This is a company with so many businesses that may become profit centers in the future, it’s worth checking out.

While these businesses currently mostly run at a loss, the future remains bright for Baidu. At least, for those willing to wait five to ten years to see this play out.

Wall Street’s Take

As per TipRanks’ analyst rating consensus, Baidu is a Strong Buy. Out of three analyst ratings, there are three Buy recommendations.

The average Baidu price target is $258. Analyst price targets range from a high of $300 per share to a low of $230 per share. 

Bottom Line

Baidu is already a large-cap company, though there is so much room to run with this Chinese technology player. That is, for those bullish on the future of China’s technology growth.

There are reasons why many investors may choose to steer clear of this stock. However, Baidu remains a top option for long-term investors looking for growth at a reasonable price. That’s hard to find in today’s market, and Baidu provides this opportunity in spades.

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Read full Disclaimer & Disclosure.

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