Baidu Inc. Stock Buy Recommendation Reiterated (BIDU)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

NEW YORK ( TheStreet) -- Baidu (Nasdaq: BIDU) has been reiterated by TheStreet Ratings as a buy with a ratings score of B. The company's strengths can be seen in multiple areas, such as its robust revenue growth, expanding profit margins, largely solid financial position with reasonable debt levels by most measures, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 22.5%. Since the same quarter one year prior, revenues rose by 43.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • BAIDU INC reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BAIDU INC increased its bottom line by earning $4.78 versus $3.02 in the prior year. This year, the market expects an improvement in earnings ($4.98 versus $4.78).
  • The gross profit margin for BAIDU INC is rather high; currently it is at 69.84%. Regardless of BIDU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BIDU's net profit margin of 34.96% significantly outperformed against the industry.
  • Despite currently having a low debt-to-equity ratio of 0.38, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.99 is very high and demonstrates very strong liquidity.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, BAIDU INC's return on equity significantly exceeds that of both the industry average and the S&P 500.

Baidu, Inc. provides Internet search services. Baidu has a market cap of $49.5 billion and is part of the technology sector and internet industry. Shares are up 38.1% year to date as of the close of trading on Wednesday.

You can view the full Baidu Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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