Baidu.com, Inc. (ADR) (BIDU), Google Inc (GOOG): This Search Engine Looks Very Attractive

As you might already know, investors are often grouped into one of two camps. Growth investors prefer to find companies that are showing rapid growth in revenue and earnings. Value investors, on the other hand, usually pick stocks that are trading below what the investor perceives to be their intrinsic values.

A stock that demonstrates the best qualities of both a growth stock and a value stock often represents a compelling opportunity. In fact, there happens to be a publicly-traded technology giant that has posted huge growth numbers over the past few years and is located in a nation with a huge population and booming economy.

That’s exactly the investing premise behind Chinese search engine Baidu.com, Inc. (ADR) (NASDAQ:BIDU), which recently posted solid quarterly numbers. Unfortunately for investors, the stock dropped hard and is in the midst of a painful period of poor stock price performance. While most investors are well-familiarized with the company’s close American cousin Google Inc (NASDAQ:GOOG), investors interested in capturing a fantastic buying opportunity would be wise to broaden their horizons.

Just Google it

When the name of a company is both a noun and a verb, you know you’ve got a special company on your hands. Instead of having to reference volumes of an encyclopedia to find more information about a subject, you can simply get on your computer and Google Inc (NASDAQ:GOOG) it. In January, the company reported full-year 2012 results, and the markets loved what the company had to say. Revenue soared more than 30% year-over-year, and has more than doubled since 2008. Diluted earnings per share clocked in at $32.31 per share. Google has a superb compound annual growth rate in earnings per share of 25% since 2008.

Google Inc (NASDAQ:GOOG) recently eclipsed the $800 per share mark for the first time in the company’s history, and the future seems bright. Google’s dominance in the American search industry is evident in the company’s $260 billion market capitalization.

A new entrant

There’s little doubt that Google Inc (NASDAQ:GOOG) is a spectacularly successful company. At the same time, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is no slouch. Baidu is often referred to as the Google of China. Baidu operates its namesake search engine in China, where it has the playing field all to itself. Remember that Google famously exited China because it wouldn’t play on the nation’s terms.

That means that a country of one billion people with a rapidly developing middle class is ripe for Baidu.com, Inc. (ADR) (NASDAQ:BIDU)’s picking. Baidu is a much smaller competitor with a market value of approximately $30 billion, but has the growth rates to justify a higher valuation.

Baidu.com, Inc. (ADR) (NASDAQ:BIDU) recently reported its fiscal-first quarter earnings, and revealed that revenue had grown 40% from the same period one year ago. Operating profit growth clocked in at a much less-robust 6% year-over-year, widely disappointing the market. As a result, investors sent the stock down sharply on the day of its earnings report.

More broadly, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) is trapped in a long-running downtrend. After trading north of $130 per share as recently as last August, Baidu has steadily declined to its current level of $85 per share.

Even though the company’s recent results did not meet the market’s expectations, Baidu now trades for a cheap multiple given its strong growth. Baidu trades for 17 times its trailing earnings, about on par with the S&P 500 Index, appreciably below Google Inc (NASDAQ:GOOG)’s 25 P/E.

The market was understandably concerned by the fact that Baidu’s top-line growth could not flow through to the bottom line. Indeed, Baidu has spent heavily on marketing and research and development in recent quarters. However, the company’s growth plans are ambitious and management takes pride in this. In the earnings report, Baidu pointed investors to the fact that its flagship mobile search product has now surpassed 100 million daily active users, an over 25% increase from the end of the fourth quarter.

Going forward, the company expects current quarter revenue to increase an additional 35% from last year’s second quarter. Assuming costs moderate for Baidu.com, Inc. (ADR) (NASDAQ:BIDU), and after such a prolonged downturn, investors may have no better opportunity to pick up shares on the cheap than exists right now.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Baidu and Google. The Motley Fool owns shares of Baidu and Google.

The article This Search Engine Looks Very Attractive originally appeared on Fool.com.

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