Truemors
The Microsoft Yahoo nonsense which is currently proceeding brings Baidu under the spotlight.
If you can think back a bit we may be in the same over-heated areawe were in 2000. Then analyst Henry Blodget of Merrill Lynch said Yahooprice potential was around $425 even though at the time they were nearthe $300 mark.
He was more than somewhat off the mark.
Yahoo dropped like a stone in a muddy pond by more than 95% andended in the $10 area. Recovered since then, of course. But it was anawful warning as to how far enthusiasm can go.
Citi thinks Baidu is a good buy and has increased its one year price target from $350 to $415.
This logic is, in a sense, helped by the fact the shares have almost doubled in the last month from the low $200s.
Past experience would tell us that last year they went up too far,too fast and are due for a correction. And that will not be in thedirection suggested by Citi.
Now let us try pure reason.
The way matters stand at the moment the market is saying Baidua isworth nearly $13 billion. To put this into perspective add togethermost of the American airlines and their total worth is less.
Yet these airlines are estimated to generate revenues in 2009 of $86 billion.
A billion here, a billion there and suddenly your are talking real money.
This equates to more than 118 times Baidu’s expected revenues of $731 million.
Even though mathematics are not my strong point and in shares I am aconservative Welsh Calvinist Methodist there seems to me to be somesort of lack of logic herein that.
Baidu’s shares are selling at 91 times estimates of the 2008 profits and 57 times 2009 estimates of $6.54.
Google is selling at only 23 times 2009 earnings estimates.
OK, forget the airlines. Think of Google. And remember that Googleis chip, chip, chipping away at Baidu’s share of the market in China.
Anything could happen because this is China and sometimes irrationaldecisions can be made. But, at the moment, I am not thinking of puttingany of my meager earnings into Baidu. The lottery looks a lot moreattractive.
Source: Seeking Alpha
Comments (0)