Microsoft Corporation (MSFT), Baidu.com, Inc. (ADR) (BIDU): This Chinese Internet Company Is Setting Up for Big Earnings

Valuations and Metrics

By most people’s standards, Qihoo isn’t cheap at the moment. However, this seems to be the price the market is willing to pay for such formidable revenue growth. The stock currently trades at about 80x TTM earnings, which is well above the industry average. The price to book is also pretty high at 10.60. For comparison, US competitor Microsoft Corporation (NASDAQ:MSFT) trades at 15.45x TTM earnings and only 3.24 to book. Of course, Microsoft isn’t delivering nearly the same kind of top line growth that Qihoo is reporting. Qihoo has a TTM operating margin of around 15% and return on equity of about 11%.

Bottom Line

Qihoo is delivering absolutely staggering revenue growth at the moment, propelled by soaring ad revenues and a strong position in the Chinese mobile market. On the other hand, the company isn’t exactly a shining example of ethical business practice. The outlook for 2013 remains impressive, and the company should be able to continue this strong growth looking ahead at Q1 2013. I am slightly skeptical about the high multiples at which the stock is currently trading, but such multiples aren’t unheard of for high-growth internet companies. After a good run in the last year, the stock may have more upside in the coming months.

The article This Chinese Internet Company Is Setting Up for Big Earnings originally appeared on Fool.com and is written by Daniel James.

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