Amidst daily market fluctuations, Baidu Inc (BIDU, Financial) has shown a notable daily gain of 5.91%, although it has experienced a 3-month decline of -6.42%. With an Earnings Per Share (EPS) sitting at 6.11, investors are pondering whether the stock is modestly undervalued. This article delves into the valuation analysis of Baidu (BIDU), providing insights that could influence investment decisions. Read on to uncover the intrinsic worth of Baidu in the current market landscape.
Company Introduction
Baidu Inc (BIDU, Financial), China's largest internet search engine, commands an impressive 84% market share as of September 2021, according to Statcounter. In 2022, the company derived 72% of its core revenue from online marketing services via its search engine. Beyond search, Baidu is a powerhouse in technology, driving growth through artificial intelligence cloud, video streaming services, voice recognition technology, and autonomous driving. With a market cap of $43.10 billion and sales reaching $18.70 billion, Baidu stands as a significant player in the interactive media industry. The stock's current price of $123.4 is set against the backdrop of a GF Value of $146.85, suggesting a potential undervaluation that merits a closer examination.
Summarize GF Value
The GF Value is a proprietary measure reflecting the stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Baidu (BIDU, Financial) is currently positioned as modestly undervalued according to the GF Value, suggesting that the stock's long-term return could surpass its business growth. This assessment is based on the stock's price in relation to the GF Value Line, which serves as an indicator of fair trading value.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of capital loss. Baidu's cash-to-debt ratio of 2.08, although trailing behind 63.25% of its peers in the industry, still supports a financial strength rating of 7 out of 10 from GuruFocus. This rating reflects a fair balance sheet, which is an essential aspect of the company's overall health.
Profitability and Growth
Profitability is a key determinant of investment safety. Baidu has maintained profitability over the past decade, with a 12-month revenue of $18.70 billion and an Earnings Per Share (EPS) of $6.11. The company's operating margin of 15.37% stands above 73.68% of its competitors, earning a profitability rank of 8 out of 10. Growth-wise, Baidu's 3-year average revenue and EBITDA growth rates are competitive within the industry, further solidifying its potential for value creation.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) offers insights into a company's value creation efficiency. Baidu's ROIC of 7.19 outpaces its WACC of 6.03, indicating effective capital allocation and shareholder value generation. This positive spread suggests a company's ability to grow profitably and sustainably over time.
Conclusion
In summary, Baidu (BIDU, Financial) appears modestly undervalued, presenting a fair financial condition and robust profitability. Its growth outperforms 52.81% of companies in the Interactive Media industry. For a detailed exploration of Baidu's financial journey, interested parties can review its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, consider exploring the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
