Yandex NV (YNDX): 12.1 Million Reasons for Baidu.com, Inc. (ADR) (BIDU) to Bounce Back

Baidu can naturally make its own luck here. It reports first-quarter results in four weeks, and nothing would trigger a short squeeze as much as a solid report.

Growth should be there. Even these uninspired analysts see earnings climbing 21% and revenue spiking 43% higher in next month’s report.

Would it be great to see margins improve? Yes. Would it be great to see Baidu’s net income grow a little faster? Sure. However, the market’s in love with Google right now, yet it’s slated to grow its profitability just 6% during the same period on a per-share basis. Qihoo 360 is actually expected to post a sharp decline in profitability as it invests in the monetization of its growing traffic.

In a few weeks, Baidu.com, Inc. (ADR) (NASDAQ:BIDU) may no longer appear to be the laggard in this lucrative niche.

Don’t turn your back on China
Save for a few exceptions — we meet again, Qihoo 360 — investors have avoided Chinese stocks in recent months. It’s not just Baidu dragging its knuckles on the floor.

However, this is still a potent company with a growing of number of shorts that will have to move the stock higher as they close out their positions. If China gets more restrictive online, the bears will win. If Qihoo 360 somehow gains market share now that it’s finally slapping Google ads on its results, the bears will win. If there are accounting shenanigans at Baidu, the bears will win. If China’s economy stops growing, the bears will win.

Any of these things will happen, but isn’t the more likely scenario that Baidu will once again prove that it’s still growing at a clip that’s worthy of a far higher multiple? You can’t ignore a company serving up 5 billion search queries a day that’s cranking out some of the highest margins in the industry.

The bears think they have this one. The chart shows them to be victorious, and there’s safety in numbers with the number of shares sold short more than doubling over the past year. However, the nice thing about a beaten-down stock is that it often doesn’t take a lot of catalysts to turn things around.

The article 12.1 Million Reasons for Baidu to Bounce Back originally appeared on Fool.com and is written by Rick Aristotle Munarriz.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and Yandex. The Motley Fool owns shares of Baidu and Google.

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