Baidu (BIDU) Is On a Fast Track to $1000 Per Share
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Shares of Baidu (Nasdaq: BIDU) are up 57% since Google (Nasdaq: GOOG) announced plans to leave China in January, including the sharp $40 per share rally over the past few days after Google stopped censoring results at its China.cn website.
With the stock trading near all-time highs and with no end in sight, investors need to ask themselves "how much upside is left?"
Looking at valuation metrics based on near-term EPS numbers and the stock looks seriously overvalued. The stock currently trades at 63x 2010 EPS estimates, versus 20x for Google (Nasdaq: GOOG).
But when looking at a company that can now control nearly 100% of the search share in China and you can see that valuation based on current estimates is not appropriate.
In our March 4th valuation summary of Baidu.com we argued that a $700 price was fair based on using a 40-50x multiple on 2011 earnings. But that was when the consensus was $13.93. The 2011 consensus has now moved up to $14.68. Take a 50x multiple on the new consensus and you can get to a price of $734.
But investors may have to look deeper into the consensus, which may still be behind the curve.
One firm that has been dead-on about the stock, Goldman Sachs, updated their estimates yesterday which are well above the street. Goldman sees Baidu capturing 50% of google.cn's revenue and raised raised 2010 EPS from $10.71 to $11.76, 2011 from $16.72 to $19.86 and 2012 from $23 to $27.22.
If you take a 50x multiple on Goldman's 2011 EPS estimates of $19.86 you get to a price of $993.
So based on this, $1000 per share may be the goal for Baidu investors.
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With the stock trading near all-time highs and with no end in sight, investors need to ask themselves "how much upside is left?"
Looking at valuation metrics based on near-term EPS numbers and the stock looks seriously overvalued. The stock currently trades at 63x 2010 EPS estimates, versus 20x for Google (Nasdaq: GOOG).
But when looking at a company that can now control nearly 100% of the search share in China and you can see that valuation based on current estimates is not appropriate.
In our March 4th valuation summary of Baidu.com we argued that a $700 price was fair based on using a 40-50x multiple on 2011 earnings. But that was when the consensus was $13.93. The 2011 consensus has now moved up to $14.68. Take a 50x multiple on the new consensus and you can get to a price of $734.
But investors may have to look deeper into the consensus, which may still be behind the curve.
One firm that has been dead-on about the stock, Goldman Sachs, updated their estimates yesterday which are well above the street. Goldman sees Baidu capturing 50% of google.cn's revenue and raised raised 2010 EPS from $10.71 to $11.76, 2011 from $16.72 to $19.86 and 2012 from $23 to $27.22.
If you take a 50x multiple on Goldman's 2011 EPS estimates of $19.86 you get to a price of $993.
So based on this, $1000 per share may be the goal for Baidu investors.
Market Moving News and Intelligence -
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http://www.streetinsider.com/premium_content.php
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