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Why Baidu Stock Jumped 10% Today

What happened

Shares of Baidu (NASDAQ: BIDU), the company called the "Chinese Google," are easily outperforming shares of Google's parent today. As of 11:20 a.m. EDT on Tuesday, Alphabet stock was up 1.5% while Baidu was up 7% after approaching a 10% gain earlier in the morning.

Image source: Getty Images.

So what

On Monday, Baidu stock won praise from analysts at investment bank Mizuho, which investors ignored in the face of news about a new coronavirus outbreak in China.

In a note on on Monday, Mizuho called Baidu's valuation "compelling." As China reopens for business, the bank said, Baidu is seeing offline businesses use its search engine as a way to generate sales leads to help grow their businesses. Baidu's core revenue is also expected to return to growth mode in Q3 2020, and resume double-digit growth in 2021.

Today's pop in Baidu's stock price looks like a delayed reaction to Mizuho's endorsement.

Now what

But is double-digit growth good enough to make Baidu stock a buy? It depends on what numbers you focus on. Hurt by the pandemic, Baidu's trailing profits are so depressed that its trailing P/E ratio is a woefully high 124. Valued on expected forward earnings, however, Baidu costs a more reasonable 20 times earnings.

Double-digit growth could be enough to justify that valuation, but you're going to have to wait a bit to see if Baidu ends up producing as forecast.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu. The Motley Fool has a disclosure policy.


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