Why Baidu Is Still a Buy

NEW YORK ( TheStreet) - Baidu ( BIDU) shares have soared since their IPO in 2005, but analysts believe the Chinese Internet company has much more room to run.

The average analyst polled by Thomson Reuters has a $188 price target on Baidu, and expects a long-term-growth rate of 44.8%.

Baidu, the Chinese Google ( GOOG), is the dominant search engine in its home nation, where it has around 78% market share, and its lead has only expanded since Google left mainland China in 2010.

Baidu recently reported stronger-than-expected fourth-quarter earnings and gave robust guidance, boosted by continued strong growth in the Chinese Internet market. Baidu said it earned 93 cents a share on $710.9 million in revenue.

Piper Jaffray analyst Gene Munster notes that Baidu has a "significant growth opportunity," and believes it is similar to Google six to seven years ago. Munster rates Baidu shares "overweight" with a $202 price target.

Baidu has taken a very similar approach to Google, essentially copying the Silicon Valley tech giant step-for-step, but in a market with significantly more opportunities. "Comparing Baidu to Google when Google was at similar revenue levels, the path to continued mid double-digit growth appears clear for the next 3-4 years," Munster wrote in his research note.

Baidu is currently expanding into the small and medium enterprise (SME) market, with approximately 300,000 customers, according to Munster, around 1% of the local market. He believes there is significant opportunity in this space, with perhaps as many as 30 million small businesses in China. "While adding SMEs aggressively will likely cost more in sales costs than large advertisers, we believe the path to meaningful, sustained top-line growth exists for Baidu over the next 3-4 years," he noted, in his report to investors.

The mobile search market has proved to be elusive in terms of generating revenue, despite it accounting for 15% of total Chinese search queries. Baidu may also be strengthening its position in the mobile market. CNET, for example, reported that Apple ( AAPL) may integrate the Chinese tech giant into its iOS for search. That relationship may expand, as Apple's new iPad was just granted regulatory approval in China.

There's still significant opportunity to monetize mobile search in China, as well as surrounding countries, such as Korea. JP Morgan analyst Sungmin Chang notes that Baidu is gaining share in Korea. Chang explains that Internet growth in Korea has "seen unparalleled smartphone penetration growth since 2009." JP Morgan rates Baidu shares "overweight."

Noted investors such as Tiger Global Management's Chase Coleman, SAC Capital's Steve Cohen, and JAT's John Thaler own large positions in Baidu. Baidu shares are up 31.7% year-to-date.

---View the rest of SAC Capital's portfolio.

Baidu is the dominant player in a country with a population over 1 billion and a burgeoning middle class that is increasingly using the Internet. Investors may want to take another look to China if they want to find the "next Google."

Shares of Baidu are up $2.35, or 1.56%, to $153.15 in Tuesday trading.

Interested in more on Baidu? See TheStreet Ratings' report card for this stock.

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-- Written by Chris Ciaccia in New York

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