Can Baidu Resume Its Uptrend?

 
on March 27 2013 4:38 PM

With shares of Baidu (NASDAQ:BIDU) trading around $88 is BIDU an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Baidu provides internet search services. The company offers a Chinese language search platform on its website, Baidu.com and a Japanese language search platform on its website, Baidu.jp. Its search services enable users to find relevant information online, including web pages, news, images, documents, and multimedia files through the links provided on its websites. As an increasing number of the Chinese population grows and becomes connected, look for Baidu to see a continued rise in profits for years to come. Head on over to the next page to explore the technical landscape of Baidu’s stock.

T = Technicals on the Stock Chart are Weak

Since its initial public offering in 2005, Baidu stock has seen an incredible rise in the long-term that has slowed in recent years. Currently, the stock is seeing lower highs and lower lows which tells us that the stock price has yet to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Baidu is trading below its key averages which signal neutral to bearish price action in the near-term.

BIDU
(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Baidu options may help determine if investors are bullish, neutral, or bearish.

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What does this mean? This means that investors or traders are buying a small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

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As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Baidu’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Baidu look like and more importantly, how did the markets like these numbers?
 

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Baidu has seen increasing earnings and revenue growth in the last four qurters. From these figures, the markets have not been too happy about Baidu’s reported performance.

P = Poor Relative Performance Versus Peers and Sector

How has Baidu stock done relative to its peers, Yahoo! (NASDAQ:YHOO), Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), and sector?

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Baidu has trailed its competitors and sector by a significant margin.

Conclusion

Baidu is well-positioned as a search giant in one of the fastest growing and largest economies in the world. The stock has seen an amazing run over the years but can recently seen some selling pressure. Earnings and revenue growth rates have been great but investors have clearly priced-in higher expectations. The increased selling has led Baidu stock to underperform relative to its peers and sector, year-to-date. WAIT AND SEE if Baidu can once again excite investors.

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