Baidu Inc. (NYSE:BIDU) has seen its stock price increase over 25% just in the past month, thanks in large part to its impressive second quarter earnings. But after recently coming off a 52 week high Baidu’s stock price might be a bit expensive with not much upside left in the short term.
Baidu has had strong revenue growth over the years, with growth of over 120% from 2013 to 2016, for a compounded annual growth rate of about 30%. However, the company’s net income has not been as successful in yielding the same type of consistency.
Despite the fluctuations in its earnings, the company has had a strong performance overall, but at a price to earnings multiple of over 47 it is a richer stock than Alphabet which trades at just 34 times its earnings. A higher earnings per share is justifiable for higher expected growth, and the ‘Chinese Google’ offers significant growth opportunities in a strong Chinese economy.
However, with the stock about $20 away from an all-time high and technical indicators suggesting it may be reaching an overbought status, there might be a correction that is due to happen soon. In the past five days the stock has stabilized with returns of less than 3%. There may be reason to believe the uptrend has slowed as Friday the stock even saw a slight decline of less than 1%.
Baidu is a good stock with lots of long term potential, but it might be worthwhile to wait out a correction first since signs point to the stock being overvalued at the present price.
