Monday, August 22, 2005

Bye Bye Baidu ?

Here is an updated hourly chart of I thought it wouldn't drop much below 90 but I was wrong.

Every Wall Street analyst I've read hates this stock. Lot's of people have been eagerly shorting it. It is obvious to everyone (including me!) that the stock price way overvalues the company. At least one of you predicts BIDU will drop to 14 over the next year!

Is it time to give up on BIDU ?

The right way to handle a situation like this one is to find a comparable company and compare stock price performance. Then compare performance relative to the market averages.

My choice for comparison is Google. Right now Google is selling around 275, about 220% above its IPO price of 85. BIDU at 75 is about 175% above its IPO price of 27. It has been more than a year since Google's IPO and only a bit more than a week since Baidu's IPO so I would rate this comparison favorable to BIDU. On the other hand BIDU has dropped 50% from its post - IPO high at 154 while GOOG is down only about 16% from its high at 320. So this comparison favors GOOG. Both stocks have recently made new bull market highs along with the S&P 500, so there is no adverse comparison here for either relative to the market.

At this juncture I am willing to bet that BIDU will establish a low around current levels which are roughly 50% of the all time high at 154 and a level that is normally strong support. (E.G. In October 2002 the cash S&P 500 made its bear market low at 768 while 50% of its all time high at 1553 was the 776 level.) The key question then will be how BIDU acts relative to GOOG and relative to the market on the subsequent rally. If its performance lags behind these two yardsticks significantly I would conclude that my long term target of 270 will not be reached during the coming year.

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