$427.89
-6.83 (-1.57%)
Baidu.com, Inc. (ADR) (BIDU)
CAPS Rating:
A Chinese language Internet search provider.
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A Chinese language Internet search provider.
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This is an example of a bandwagon short- a few top fools did a thumbs down here (for reasonable reasons- which turned out to be flawed) and many people copied without doing due diligence.
The issue on this one is that when your profit is $1 it is very easy to have a P/E ratio in the hundreds or thousands. lots of the internet companies have low profit until they make a small tweak to their system that allows them to collect (such as Google and their advertising business). Suddenly their P/E seems very reasonable for a fast growing company. This does not happen in other industries with hard tangible assets with physical products- and students of the fundamentalists such as buffett and lynch (like me) may be fooled here if we are not careful. Buffett did warn to know the business and industry you are investing in... and the internet is a very unique business environment.
So for internet startups- it is very prudent to hold back on investing in them until they prove themselves with earnings- just be very careful of shorting them for absurd P/E ratios. P/E ratios in such a company mean nothing when earnings are close to zero but potential earnings within a year or two are much higher. If you want to short a company like this- I like to short on the basis of cashflow, debts or insolvency.
Just my opinion.
I should add that my reasons for going long here were that this company is well positioned in terms of market share and may be able to capture much of china's tech growth for the coming years. I saw this one a year or two ago but was unwilling to risk going long on it then because it hadn't established any earnings. For the past 6 months however it has kept up at around a 30 P/E- high I know but for a company with >30% sustainable growth per year as a strong possibility- I think its okay. I dont see a lot of risk of this company dying... it could stagnate if they do a lot of things really wrong, or it could be stratospheric. I would consider this one a moderate risk, very high potential reward for someone who is patient.
Couldn't agree more, I am up 110-115%, and I gained 99.92 caps points to boot since 02/17/09.
Thank You for your opion.
Baidu is China's Google...in is just simple a matter of time. There market is very profitable if you can read the market. China's silicon age is just starting. This is a good pick and conservative one.