Investors Finding Potential in Top Chinese Search Engine Baidu

As far as Chinese technology stocks go, Baidu (BIDU) is one of the most oft-considered stocks out there. Often called the “Google (GOOGL) of China,” Baidu remains a top pick for growth-hungry tech investors looking outside of America for growth in this arena.

Indeed, Baidu has been quite the growth gem for investors over the past year. One year ago, investors could buy BIDU stock for around $100 per share. Today, that number is closer to $200 per share.

However, the kicker is – BIDU stock went up to nearly $340 per share earlier this year. As tech has broadly sold off, BIDU stock has become very attractive at these levels. (See Baidu stock analysis on TipRanks)

Here are some reasons Baidu deserves another look from growth investors today.

Extremely Attractive Business Model

Returning to Baidu’s comparison with Google, Baidu’s core legacy business as the dominant search provider in China generates a significant portion of the company’s earnings.

Baidu’s market share of 70-80% in the Chinese search market gives it a near-monopoly in a hyper-growth market. With China’s economy expected to surpass that of the United States at some point this decade, one could argue that Baidu’s core business is much more enviable at these levels than Google’s. If the runway of economic growth in China is as good as many economists predict, Baidu’s growth rate in this segment could theoretically be double that of Google for decades.

Moreover, it turns out that search is just one of many businesses under the Baidu umbrella. The company is a broad conglomerate of businesses ranging from AI to electric vehicles (EVs).

Baidu’s portfolio of AI patents is the largest of any company in China. Additionally, its EV segment has been a source of speculative fervor, as other EV stocks took off earlier this year. The company’s announced partnership with auto manufacturer Geely to enter this market took this stock on a nice ride.

These catalysts are still as strong as ever today. One might then wonder – why the sell-off? Well, there’s one factor in particular to consider right now.

Archegos Margin Call Led to Technical Correction

The recent movements in Baidu stock aren’t 100% natural. That is, a margin call accounted for the majority of the early drop in this stock a couple months ago.

The infamous Archegos Capital margin call sent a number of Chinese stocks tumbling. It turns out that Archegos owned a large stake in companies such as Baidu. Therefore, Archegos’ block sale of stocks sent these companies’ shares cascading downward. 

Regrettably, Baidu stock hasn’t recovered from this mess as of yet. Shares continue to trend downward following this technical correction. It appears the momentum trade is in full swing today, and unfortunately for growth investors, momentum works in both directions.

Where to Go From Here?

Given the main explanation for its sell-off, Baidu represents a compelling growth opportunity.

Looking back, we can see that BIDU stock is trading at 2014 levels. For a stock with this much long-term growth potential, this company seems like a steal right now.

Analysts agree. The average analyst price target for BIDU stock right now is $351.27, implying upside potential of 88.6%. The stock’s consensus rating is a Strong Buy, based on 15 Buy and 2 Hold ratings.

Given its potential, Baidu just might hold vast opportunity for investors looking for growth.

Disclosure: Chris MacDonald does not have a long or short position in Baidu stock.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.