Baidu hits low signal

1. According to Web site traffic ranking company Alexa.com, the company's flagship website was the most visited in China and the fifth most-trafficked in the world as of March 2012. BIDU is often described as the Google of China. As of December 2011, BIDU had about 311,000 active online marketing customers.

2. Market capitalization of $36 billion. Return on Capital of 55% and earnings yield of 3%. S&P rating is 5 stars, with a 12 month target of $USD 180.00.

3. The stock trades at a high multiple of 40X earnings, but is growing at more than 50% per year. Our normal position size is 5% but in this case, to mitigate risk because of the high PE multiple, we recommend a ½ position.

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5. Low valuation signal in BIDU at $USD 133.00 (BIDU-US, $USD 132.98)

6. Assuming that earnings continue their trend, the Purple Chips model sees a reasonable valuation around $USD 180+ within 18 months.

7. The Purple Chips approach suggests a normal valuation would see the price return to about $58 in the next 18 months. S&P has a rating of 5 stars, with a target of $77.00

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