Baidu, Inc. (NASDAQ: BIDU) had a very weak second half of 2011 despite closing up for the whole year as accounting concerns in China met a slowing of growth and a lower demand for shares in China’s stock market from international investors. Still, the company is at least considered to be one of the better run outfits, and it has solid market share of online search in China. The year 2012 is getting off to a great start for the company’s stock holders due to some shares gains of almost 7% to $124.39 late in the day with only a few minutes until the market closes. The excitement is that Baidu may actually increase its acquisitions in the year 2012 and the report is being credited to Mizuho Securities.
What is interesting is that many acquirers see their share price actually fall when they announce acquisitions. Baidu is always an expensive stock, even when its shares “go on sale” after a drop in Chinese share prices. At $124.39, the 52-week trading range is $97.58 to $165.96.
The company has such large market share that perhaps its acquisition should be kept to bolt-on supplemental deals rather than Pac-Man deals. Even then, that assumes that it can find deals that help its earnings performance rather than deals which push the earnings growth out further. At $124.39, Baidu trades at 42-times the $2.96 EPS estimate for 2011 by Thomson Reuters. It also trades at about 28-times the projected $4.40 EPS target from Thomson Reuters.
The good news is that this may actually be getting cheap even with a high multiple. Usually investors have had to pay 50-times or even 100-times forward earnings.
JON C. OGG
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