Baidu Inc Stock Represents One of the World’s Greatest Niche Plays

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Baidu Inc (ADR) (NASDAQ:BIDU) stands in an unusual position, both as a company and as a stock. The company is making moves to further enhance its reputation as the Chinese-language version of Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). However, with a competitive advantage in its niche and its high growth rates, BIDU stock is an equity poised for further gains.

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Baidu’s “Google of China” Reputation Remains Secure

BIDU stock is arguably the world’s best niche equity.

The Chinese-language orientation of Baidu does not lend itself to being well-understood in Western countries. Still, this niche allowed BIDU to become the so-called “Google of China,” and the company has turned this market segment to its advantage.

Despite its use in only one country, the Chinese language has more than twice the number of speakers of English. It’s the dominance of search in a protected and large Chinese language market that allows Baidu to copy Google successfully. Like with Google in other language markets, the moves Baidu makes regarding advertising, artificial intelligence (AI), self-driving vehicles and other technologies make the company an important player in the high tech industry.

Chinese Government Censorship Works to Baidu’s Advantage

Baidu’s search engine dominance in the world’s most spoken language represents a wide moat. Also, courtesy of the Chinese government, BIDU stock’s moat is strengthened even more by the blocking of Google within China. Google pulled out of China in 2010 over a dispute involving censorship rules. Google remains locked out of China as it feels abiding by China’s censorship rules would violate its mission of remaining an open platform.

Talks for Google’s re-entry into the market remain ongoing. Still, Baidu fills a void that Google cannot to over 700 million internet users. Years ago, Google launched Google+ to try win over the Facebook Inc (NASDAQ:FB) user base. Going into this segment as a “me too” product failed. Google will likely face the same challenge if it’s allowed to compete with Baidu in China. Hence, the moat of BIDU stock is well-protected from its largest potential threat.

BIDU Stock Has High Growth

BIDU stock also enjoys a strong financial position. Average revenue growth over the last five years exceeded 37%! While not as high as Tesla Inc (NASDAQ:TSLA), this figure represents faster revenue growth than the likes of Amazon.com, Inc. (NASDAQ:AMZN) or Netflix, Inc. (NASDAQ:NFLX), and most notably, faster than Google’s parent company Alphabet.

However, the price-to-earnings (PE) ratio stands at around 31 with the current BIDU stock price. This figure is more than the average S&P 500 PE ratio but is close to Alphabet’s PE of 34. The PE of BIDU compares better with other tech giants. Amazon’s PE now stands above 280, and the Netflix PE has reached 198. Both have lower growth rates than Baidu. Tesla does not have a PE at all since it does not turn a profit.

Unlike Tesla, profits are not an issue for Baidu. BIDU’s net income has grown by an average of almost 12% per year over the last five years. Analysts forecast 2017 a consensus earnings per share (EPS) of $6.88 per share, up from $5.72 per share the year before. This profit growth is predicted to continue, with analysts EPS forecasts exceeding $9 per share by 2020.

Concluding Thoughts

BIDU stock will continue to grow revenues and profits in a niche market that allows the company to do something no other entity can—copy Google. Both the Chinese language and the censorship rules of China remain hard to understand for most Western investors.

BIDU understands both and has created what’s arguably the world’s best niche, dominating a market where Google, its most natural competitor, remains blocked from access. Also, BIDU enjoys more revenue growth than both Amazon and Netflix. Despite this success, the PE ratio resembles that of slower-growth tech stocks. With room for higher multiples and China’s growing internet market, Baidu and BIDU stock have room to keep on growing.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/bidu-stock-niche-plays/.

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