"Baidu.com (NASDAQ: BIDU), the leading Internet search company in China, is considered the'Chinese Google'," notes Chuck Carlson, advisor and expert on dividend reinvestment plans.
In his The DRIP Investor, he takes a look at the Beijing-based company, it's long-tern growth prospects, and its just launched direct purchase plan.
”The company is the leading Internet search company in China. The company has more than 60% of China’s search market. Google is No. 2 with 25%. Baidu generates revenue much the same way Google does via ads that are strategically placed near search results. Growth has been very impressive.
"In the third quarter, the company posted a 91% jump in earnings. The results beat analysts’ estimates. Revenue jumped 85%. The company is bene?ting from continued growth in its online advertisers.
"The ?rm ended the third quarter with 194,000 online advertisers, up nearly 36% from a year ago and up more than 7% from the second quarter.
"However, the potential market for the company’s services is huge. By some estimates, there are roughly 20 million small and midsized businesses in China, so the market is still very much untapped.
"Despite the strong third-quarter results, the stock sold off sharply on the earnings news. Investors have been harsh on China-based companies due to fears of a signi?cant slow-down in the China economy.
"China’s gross domestic product growth rate slowed to 9% in the third quarter, a ?ve-year low. And advertising outlays usually suffer during slowing economies.
"Nevertheless, China remains a country with excellent long-term growth potential. And as the economy continues to develop, it should help grow the number of people using Baidu’s search services and the number of advertisers who want to capture that audience. The consensus 2009 earnings estimate is $7.13 per share ($U.S.).
"The company’s American Depositary Receipts (ADRs), which trade on the Nasdaq market, sell for $179 per share. Thus, the stock trades at approximately 25 times the 2009 estimate. However, Baidu’s growth rates certainly merit a premium valuation.
"I admit that it is tough to recommend such an aggressive growth play in a market that wants little to do with risk. Baidu stock has already felt plenty of selling pressure — the stock is down from its 52-week high of more than $429 per share. And it is possible that these shares could see lower levels in the near term.
"However, given the growth potential of the company’s market, it is hard not to like the long-term growth potential of these shares. While the stock is not for the meek, I think the current price represents a reasonable entry point to nibble on the stock.
