Poor Baidu (NASDAQ:BIDU) just can’t seem to catch a break.

China’s digital search giant reported a robust double beat second quarter that topped even the highest estimates on Wall Street. Across the board, from revenue growth, margin expansion and profit growth, the numbers were great. Management also delivered a strong guide that called for sustained big growth.

BIDU stock briefly rose in response to those numbers. But, the rally was short-circuited by news that Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) plans to re-launch in China with a censored version of its search engine. BIDU stock quickly reversed course on that news, and is now down nearly 8%.

Renewed Google competition is a big thing. Back in 2010, when Google China was its peak, Google controlled 30% of China’s search market. Thus, Google coming back to China does provide material risks to the Baidu growth narrative.

But, with BIDU stock now 20% off its 2018 highs, this sell-off seems overdone. At the end of the day, Google’s censored search engine will take some market share, but Baidu will maintain the dominant market position. This dominant market position coupled with secular growth in China’s digital advertising market will power the continually strong earnings growth over the next several years.

At $230, BIDU stock isn’t priced appropriately considering those strong earnings growth prospects. Consequently, I think this is a dip that should be bought.

Here’s a deeper look.

Baidu’s Quarter Was Really Good

First and foremost, Baidu’s second-quarter earnings report was really good.

Revenue growth was a robust 32%, continuing what has been a multi-quarter uptrend in revenue growth rates ever since the company shook off bad PR and advertiser churn a few years back. Over the past several quarters, revenue growth has gone from 29% to 31% and then to 32%.

This revenue growth acceleration will likely continue. Revenue growth is guided to be 30% next quarter, but management always guides light. Thus, it seems likely that Baidu revenues grow in excess of 32% next quarter.

Robust revenue growth is being driven by a multitude of factors, namely improvements in AI and targeting algorithms which increase ad efficacy and boost ad demand. These improvements will persist because Baidu has the biggest consumer database in China, and data is the key to building successful AI-enabled advertising solutions. The company also continues to make big strides in smart home and self-driving, two markets that are presently nascent, but have huge multi-year growth potential.

On the margin front, operating margins are stable. The best of this company’s margin growth narrative is in the rear-view mirror. But, consistent big revenue growth is allowing the company to invest big and still maintain a healthy margin profile.

Overall, Baidu’s quarter was really good. Revenue growth remained above 30%, and margins were stable.

Google Provides New Threat

The post-earnings rally in BIDU stock was short-lived thanks to news that Google is jumping back into the Chinese market with a censored version of its search engine.

For those unaware, here is a little history on Google and China. Google had a search engine presence in China from 2006 to 2010. During that stretch, Google’s search market share went from 15% to 30%. But, regulatory hurdles and free speech limitations forced Google to pull out of China. Since then, Google’s search market share has dwindled to below 2%.

Thus, if Google relaunches in China with a censored product, it is possible that this company retakes 15-30% of the search market. But, gains beyond that seem unlikely. While Google grew market share by 15 points to 30% from 2006 to 2010, Baidu grew its market share by 17 points to 64% during that same stretch. Baidu’s market share gains have since continued, and Baidu currently controls about 75% of the search market.

When it comes to digital search, it is tough to unseat the giant. Thus, while a censored Google China search engine will inevitably steal market share, the impact to Baidu will be greatly mitigated. In all likelihood, Google will likely struggle to get 15% of the market today.

Baidu Stock Can Rally From Here

China’s digital advertising market is growing at a 30% rate, and is expected to grow in excess of 20% per year over the next several years.

Baidu’s revenue growth presently hovers around the market-average rate of 30%, implying that the company is defending its market share. If Baidu loses around 15% market share over the next several years, then the company should still be able to grow revenues by around 15% per year thanks to broad digital advertising market growth.

Assuming operating margins stabilize around 25%, a 15% revenue growth rate implies earnings-per-share of $16 in five years. A growth-average 20X forward multiple on that implies a four-year forward price target of $320. Discounted back by 10% per year, that equates to a year-end price target for BIDU stock of $240.

Thus, even in the event that Baidu loses 15% market share to Google China (which is a huge if), BIDU stock is still undervalued here and now.

Bottom Line on BIDU Stock

Google jumping back into China search does limit the upside scenario on BIDU stock. But, at $230, BIDU stock looks undervalued even after factoring in Google market share gains over the next several years.

Thus, further weakness in BIDU stock should be viewed as a buying opportunity.

As of this writing, Luke Lango was long BIDU and GOOG.