Why Is Baidu Stock Rising Today?


Sep. 26 2019, Updated 2:51 p.m. ET

Baidu (BIDU) shares gained 3.5% in early market trading today. According to a Bloomberg report, the company is selling 30% of its stake in Ctrip.com. The stake is worth $1 billion. Baidu will likely use the money to fight rising competition in the ad business and the slowing domestic economy.

The report said, “Ctrip announced Thursday a proposed secondary offering of 31.3 million American depositary shares held by Baidu. That represents around 30% of its stake in Ctrip and is equivalent to around $1 billion according to Ctrip’s current share price.”

The company owned 19% of Ctrip.com when it invested in the company back in 2015.

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Baidu stock has lost market value 

Baidu investors have lost significant wealth over the last year. The stock has fallen 53% since October 2018. Since May 2018, Baidu stock has fallen more than 60%. The slowing domestic economy and escalating US-China trade war impacted the company.

While China’s economy is still sluggish, Baidu beat analysts’ estimates in the June quarter. Although the sales in the second quarter only rose 6% to $3.73 billion, they were higher than analysts’ estimates of $3.66 billion.

The company’s EPS of $1.43 was 66% above the estimates of $0.86. The higher EPS drove the stock higher by 8% on August 19. Analysts expect Baidu’s sales to fall 0.7% to $15.1 billion in 2019. However, they expect the sales to rise 13.7% to $17.15 billion in 2020 and 13.8% to $19.7 billion in 2021.

Analysts expect Baidu’s earnings to fall 54% in 2019. However, with the return to revenue growth in 2020, Baidu’s earnings will likely rise 42.6%. Comparing the earnings to the stock’s forward PE ratio of 16.5, you can see that it has significant upside potential.

Will Baidu benefit from trade war de-escalation?

Baidu and other Chinese peers will likely benefit from the trade war de-escalation between the two largest economies. The trade talks have resumed. President Trump stated that a trade deal might be on the horizon.

The slowdown in China might give the US the upper hand. President Trump would like to reach a trade deal before the 2020 election. A trade deal would drive investors’ optimism. A resolution would boost to broader indices and other companies.

Analysts have a 12-month average target price of $146.21 for Baidu, which indicates an upside potential 36.5% from the current price. To learn more, read Three tech Stocks to Buy for Contrarian Investors.

Market Realist analyst Aditya Raghunath doesn’t hold a position in any of the stocks mentioned above.


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