- Baidu’s stock price rose by 28% in 2014.
- Baidu valuations (P/S ratio) are cheaper than they were a year ago.
- Baidu valuations indicate a 36%-54% upside potential in 2015.
Baidu’s stock price jumped by a solid 28% in 2014, and still, the Chinese search giant is an interesting investment option in 2015. Two quick facts that you should bear in mind while evaluating Baidu’s 2015 prospects are:
- Baidu valuations are cheaper than they were a year ago, in spite of the strong rally in stock price
- Baidu (NASDAQ:BIDU) valuations based on Baidu’s 2015 revenue estimates, indicate a 36%-54% upside potential
Baidu Stock Performance In 2014
Baidu’s stock price rose by 28% in 2014, ending the year at $228 a share.
In 2014, Baidu’s stock price rose by nearly 59% after touching a 52 week low of $143 a share in April, due to concerns about a slowdown in the Chinese economy. In spite of the strong rally, Baidu valuations make for a compelling investment case in 2015.
Baidu Revenue & Profitability
As we had highlighted in our coverage of Baidu earnings for Q3 2014, Baidu is a fundamentally solid company. As of Q3, Baidu’s revenue growth was robust at 52% YoY. In spite of the gradual decline in profit margins when compared to the levels seen in 2013 and 2014, Baidu’s operating and net profit margins came in at about 29% each in Q3 2014.
Baidu also generates healthy operating cash flows. In Q3 2014, the Chinese search giant generated RMB 4.9 billion or USD 798 million in operating cash flows, or 1.3 times the net income. You can watch out Baidu stock analysis video to get a quick roundup of key financials from Baidu’s Q3 2014 earnings.
Baidu Revenue Estimates For 2015
Analyst estimates peg Baidu’s 2015 revenue at RMB 69.55 billion. Based on a RMB to USD conversion rate of 6.25 RMB per USD, Baidu revenue estimates for 2015 translate to $11.13 billion.
At a stock price of $229 a share, Baidu valuations are as follows:
- Baidu Price To Sales Ratio – 11.15
- Baidu PE ratio – 30.09
Baidu Price Target for 2015
Based on 2015 revenue estimates and Baidu’s current market cap of $82 billion, Baidu’s price to sales ratio (1 year forward) stands at 7.4. That’s much lower than Baidu’s average price to sales multiple of 11.45 in 2014.
Valued at the 2014 average, Baidu valuations indicate a 54% upside potential with a price target of $354 a share, over the coming 12 months.
Even if one were to assume that Baidu valuations in terms of its price to sales ratio reduce to 10 times sales in 2015, Baidu’s stock should trade at $311 a share, indicating a 36% upside potential from its last traded price of $229.
Baidu In 2015: Closing Thoughts
As discussed, Baidu valuations are cheaper than they were a year ago, in spite of a strong rally in 2014. China’s economic slowdown could serve as a headwind for Baidu. However, internet penetration is growing in China, and with the global shift from physical to online businesses, Baidu is well positioned to grow, given its dominant market share in the internet search market.
With its robust fundamentals, Baidu valuations make the stock a compelling investment for long term investors, with an upside potential ranging from 36% to 54% in 2015, from its current stock price of $229 a share. Baidu has been one of our top stock picks and has returned over 50% since we added it to that list.