Baidu Inc (BIDU) Stock Has a Lot More Room to Run Higher

Welcome to the party, Baidu Inc (ADR) (NYSE:BIDU) stock. BIDU stock was certainly late to the party that has sent China internet stocks roaring higher, but the Chinese online search giant has finally arrived. After being flat for most the year, BIDU stock has taken off like a rocket ship ever since a strong earnings report at the end of July.

Baidu Inc (ADR) (BIDU)
Source: Shutterstock

BIDU stock is now up 50% year-to-date versus a 12.5% run higher for the S&P 500.

But BIDU stock still has a lot of ground to make up. Tencent Holdings Ltd (OTCMKTS:TCEHY) stock is up 80% so far this year. Alibaba Group Holding Ltd (NYSE:BABA) stock is up about 95%. Weibo Corp (ADR)(NASDAQ:WB) stock is up more than 140%, while Baozun Inc (ADR)(NASDAQ:BZUN) stock is up about 180%.

All the sudden, BIDU’s 50% gain seems relatively unimpressive.

But the BIDU growth story is just as strong now that the company has moved past its biggest headwind. Investment takeaway? Buy BIDU stock.

Baidu Is Back on Track

Here’s the quick-and-dirty on why to buy BIDU stock.

It used to be one of Wall Street’s favorites. But then Wall Street put its love affair with BIDU on hold when the company was at the center of a huge online search controversy that involved the death of a student. BIDU officially phased out of that controversy last quarter, and now Wall Street is back in bed with this hyper-growth tech stock.

Lets look at the numbers for proof.

In 2015, Baidu reported revenue growth in excess of 35%. Growth in the first quarter of 2016 was 31%. That lapped 34% growth in the first quarter of 2015. Big takeaway is that this was a 30%-plus revenue growth machine that wasn’t showing many signs of slowing.

But then tragedy hit the search platform. In May 2016, a student tragically died as a result of attempting a faulty cancer treatment found through the Baidu search engine. There was huge public backlash. Baidu implemented many changes. Chinese authorities stepped in. Advertisers pulled out.

Revenue growth fell from a 30% clip to 10% in the second quarter of 2016. Revenue growth was eventually flat in the fourth quarter of 2016.

But here’s how revenue growth is trending so far in 2017. First quarter? Up 6.8%. Second quarter? Up 14.3%. Guide for the third quarter? Between up 27% and up 30%.

All the sudden, BIDU is a growth machine again. And it’s getting back on track against the backdrop of a burgeoning China internet growth narrative.

Bottom Line on BIDU Stock

At the end of the day, it always comes down to numbers. BIDU stock trades around 35-times forward earnings. Meanwhile, earnings growth after this year is pegged at roughly 29% per year. That is a price-to-earnings/growth (PEG) ratio of about 1.2.

Baidu’s multinational counterpart, Alphabet Inc (NASDAQ:GOOG), trades at 31-times forward earnings for post-2017 earnings growth prospects of about 24% per year. That is a PEG ratio of about 1.3.

And that is about as good of a PEG ratio as you’ll find in the hyper-growth tech sector., Inc. (NASDAQ:AMZN) trades at nearly 260-times forward earnings on growth prospects of about 95% (PEG of over 2.7). Netflix, Inc. (NASDAQ:NFLX) trades at just under 155-times forward earnings on growth prospects of about 70% (PEG of over 2.2).  NVIDIA Corporation (NASDAQ:NVDA) trades at 44-times forward earnings on growth prospects of about 21% (PEG of 2.1).

All in all, it’s clear to see that BIDU stock gives you more bang for your buck than some of the most loved hyper-growth tech stocks on Wall Street.

Big takeaway? Wall Street is back in love with BIDU stock, but the China internet growth narrative is still in its early legs. Plus, BIDU has some catching up to do with its peers and the stock has an attractive valuation.

As of this writing, Luke Lango was long BIDU, BABA, WB, BZUN, AMZN, GOOG, NFLX, and NVDA.

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