I am bullish on Baidu (NASDAQ:). Over the last six months, the stock fell 35.4%. This presents a great opportunity for investors who are looking to buy-the dip.

Baidu operates China’s biggest search engine portal, with over 74% of the market share market share in desktop and mobile search.

BIDU is currently trading at a discount from its 52-week high of $354.82, suggesting that this could be a good time to go long on the stock. TipRanks shows Baidu stock charts.

Undervalued but Highly Profitable

China has a growing digital advertising industry, worth $97 billion a year. BIDU deserves a valuation that is higher than its forward PE of 17.1x.

Google (NASDAQ;) and Microsoft (NASDAQ.) are search engine competitors with forward P/Es 28.2x and 33.4x respectively. Google’s net profit margin is just 28.5%. Baidu’s TTM margin net income margin was 37.2%.

Growth Drivers from Cloud Computing and AI

Baidu is one of the world’s leading AI companies. At a rate of 20.3%, the cloud AI market is increasing. The market for this niche will reach $13.1 million by 2026.

BIDU has a strong tailwind from the fast-growing (17.5% CAGR) $371.4-billion global cloud computing industry. Baidu’s portfolio of services is as comprehensive as Microsoft’s Azure platform.

Self-Driving Taxis and Cars

Baidu is already operating the first paid self-driving taxi in Beijing. The Apollo Go robotaxis boast Level 4 autonomy.

Last year, the global robotaxi market was valued at $450 million. This industry continues to grow at a remarkable 59.2% annual rate. The market will reach $45.4 million by 2030.

Baidu may be a strong competitor to Tesla (NASDAQ) (TESLA), in China and Asia. Tesla’s net income margin is only 5.1%, and yet it touts a forward P/E of 114.7x.

Tesla does not have a Level 4 self-driving commercial electric vehicle or robotaxi service.

Robust Financial Numbers

Baidu currently holds $26.2 billion in cash. This amount is more than the total $13.81 million in debt. The company’s short-term assets, $30.85billion, is greater than the short-term obligations of $13.14billion.

Net operating cash flow of the company is $4B, enough to repay short-term interest payments totaling $468.4 Million.

Baidu’s Piotroski F Score is 7.

Wall Street’s Take

Wall Street analysts consider Baidu a Moderate Buy, based on 11 Buys, one Hold, and two Sells. The average BIDU price target of $249.58 indicates a 58.7% upside possibility.

Conclusion

The relative undervaluation of Baidu against Google and Microsoft is a golden opportunity. It has many catalysts, such as its self-driving car, cloud computing and AI services.

Disclosure: Motek Moyen had no position at the time this article was published.

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