After a bruising spring and summer, Baidu (NASDAQ:BIDU) stock looks to finally be on the mend.
At a minimum, it can be said that the bleeding in shares of this Chinese technology giant appears to have stopped. After plummeting 30% over the past six months, the company’s share price has actually more than 7% in the last month changing hands today at around at $164.
Since bottoming at $137.33 on Aug. 19, the stock has climbed higher, giving hope to shareholders who have had to watch in horror as the share price fell to one new low after another in recent months.
With the stock finally trending higher, investors may want to risk a small position in the Beijing-based internet and artificial intelligence company.
As with many major Chinese technology firms, Baidu has been hurt this year by the ongoing government crackdown that seeks to reign in private sector entities and companies whose shares are listed on foreign stock exchanges.
As one of China’s leading technology concerns, most valuable companies and high flying stocks, Baidu was naturally pulled down along with peers such as Alibaba (NYSE:BABA) and Tencent (OTCMKTS:TCEHY).
While Beijing’s crackdown is not over, it appears that the worst might be over for tech companies and that Baidu has been spared – at least for now.
The Crackdown and BIDU Stock
China’s political leaders and regulators seem to have backed off after establishing what is being called a “Common Prosperity Fund” that is aimed at encouraging companies to share their wealth and lessen inequality in the world’s second-largest economy.
Alibaba became the first company to make a donation to the fund, pledging to donate $15.5 billion, much to the approval of government officials in the country of 1.4 billion people. Alibaba also promised to help increase technological investment in China’s less developed areas and enhance the growth of small businesses and agriculture.
While Baidu has not been singled out for punishment by the Chinese government and has yet to pay any fines or donate money to the Common Prosperity Fund, the political situation within China remains a risk for investors, albeit one that is now slightly less threatening.
Reasons for Optimism
Politics aside, Baidu continues to be a best-of-breed Chinese technology company. Second-quarter financial results that were released in August showed that Baidu continues to fire on all cylinders.
Q2 revenue rose 20% from a year earlier to $4.86 billion, beating analyst estimates by $50 million. It was the fourth consecutive quarter of positive sales growth for Baidu. Fully 65% of Baidu’s revenues continue to come from online advertising and marketing. The segment has remained strong coming out of the pandemic.
While BIDU stock initially sold off after the company said it now expects growth in the current third quarter to slow to 8% to 19% annualized revenue, investors quickly changed their tune and began buying shares after the second-quarter results were announced.
Retail and institutional investors seemed to like the fact that Baidu has managed to continue growing despite the twin challenges of the global pandemic and onerous political climate in China.
Long-Term Outlook
Baidu continues to have an extremely positive long-term outlook. The company remains a leader in artificial technology and is building both its video streaming and cloud computing segments.
Plus, the company is aggressively expanding into the automotive space – both electric and autonomous vehicles. Baidu is finalizing its self-driving vehicle platform called “Apollo” and is shoring up several electric vehicle partnerships in an effort to diversify its business and lessen its reliance on online advertising and marketing.
BIDU stock looks incredibly cheap right now at just 16 times forward earnings (exceptionally low among technology stocks), and analysts agree that the share price is undervalued at current levels.
The median price target on Baidu’s stock is currently $260.43, implying a potential future gain of 60%. The high target on the stock is $357.58. If indeed Baidu stock has bottomed, it would make a great addition to the portfolios of value investors and bargain hunters.
BIDU Stock Is Worth a Small Position
Politics in China is a different beast and the government crackdown that remains ongoing could again turn its attention to the country’s technology sector.
Risks clearly remain.
But right now, it does appear that BIDU stock has bottomed, turn itself around, and is rising finally. For this reason, it would make sense for investors to take a small position in the Chinese technology company. See how the shares perform over the near term and be ready to sell quickly if conditions deteriorate further.
Given its strong financial performance, cutting-edge technology and attractive share price, though, BIDU stock is a buy.
On the date of publication, Joel Baglole held a long position in BIDU. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
