Why Baidu Deserves a Spot in a Value Investor´s Portfolio

I have been interested in Baidu for quite a while and today decided to open a position in the company by buying 6 shares at a price of USD 163. I will increase the position when prices turn more favorable.
On SeekingAlpha I have outlined why shares are a buy at current levels in detail. You´ll find the pitch including my valuation model here:

http://seekingalpha.com/article/3994400-baidu-sum-parts-valuation-indicates-shares-worth-255

For all the folks in a rush, here´s a fast track introduction as to why Baidu may be suitable for a value investor´s portfolio despite being an internet company and Chinese:

  • Sum of the parts valuation results in value of USD 255 per ADR
  • or 60% upside until end of FY2017
  • Baidu search is significantly undervalued trading at 11x FY2017 after tax profits while growing at a > 20% clip
  • Comparable businesses command multiples in excess of 20x profits
  • High search margins are buried under large investments into O2O and iQyi
  • Sale of online-to-offline businesses and Chinese Netflix pendant iQyi will reveal true earnings potential or provide upside optionality if turning profitable.

Here´s a brief update on what Chinese think of the company and its services. Headline here is that Baidu is unloved but there is no alternative for it, which will ensure growing profits for years to come.

http://seekingalpha.com/article/3995910-chinese-sentiment-toward-baidu-leaves-much-desired

Disclosure:

I am currently long Baidu (BIDU)

Advertisements