To The Moon

$(Baidu(BIDU) )$ dominates internet search in China the way $Alphabet(GOOG)$ does here. Is BIDU stock a buy right now as the company expands into new AI-fueled businesses?

Baidu made its name in online search and maps. Over the last few years, the so-called Google of China built out a vast ecosystem of mobile apps and AI-driven businesses, to grow its non-advertising revenue. Baidu also made its mobile ecosystem a priority, aiming for in-app search to grow faster and more profitably than browser search.

Now, Baidu is jumping into the electric vehicle race, as Chinese EV makers$NIO Inc.(NIO)$ ,$Li Auto(LI)$ ,and$(Xpeng(XPEV) )$take on$(Tesla(TSLA).)$

On Jan. 11, Baidu announced it's teaming with Chinse automaker Geely to make electric cars. Baidu had already been working on self-driving technology for some time.

BIDU Stock Technical Analysis

Baidu rallied strongly in 2020 despite the pandemic hit early on. Shares are now far above the10-week lineafter finding support at that level in late November, according toMarketSmith chart analysis. They are still off May 2018 highs.

On Jan. 15, BIDU stock was far extended from a 135.54 cup-with-handlebuy pointcleared in mid-October. That means the Chinese internet stock is not in buy range.

The IBD Stock Checkupshows that Baidu earns a Composite Rating of 95 out of 99. TheComposite Rating combines key fundamental and technical metrics in a single score. Investors in top growth stocks should generally look for a CR of 95 or higher.

The KraneShares CSI China Internet ETF (KWEB) holds Baidu,$Alibaba(BABA)$ and $Tencent Holding Ltd.(TCEHY)$ . The three are collectively known as China's BAT stocks. Alibaba is on theIBD Long-Term Leaderslist, but sold off lately as Chinese regulators launch an anti-monopoly probe.

Baidu has aRelative Strength Ratingof 91, above the 80 or higher benchmark you'd want to see. Meanwhile, therelative strength linehas rallied to a year-plus high after a long slide. The RS line is the blue line in the chart shown. It reflects weakness vs. the S&P 500 when it's trending down.

TheAccumulation/Distribution Ratingis a perfect A+, on a scale of A+ to E, signaling institutions have been strong buyers of BIDU stock in the past 13 weeks.

Baidu is a well-traded stock, with strong institutional backing. At the end of December, 1,335 funds owned BIDU stock, down slightly from September. Ten analysts rate Baidu stock a buy, one has a hold and none has a sell, according to Zacks Investment Research.

Baidu Earnings And Fundamental Analysis

On key earnings and sales metrics, BIDU stock earns an EPS Ratingof 91 out of 99, and anSMR Ratingof B, on a scale of A-E. The EPS rating scores a company's earnings growth vs. other stocks, and the SMR rating measures it on sales growth, profit margins and return on equity.

Baidu has a solid earnings history and led the explosive rise ofChina internet stocksa decade ago. But earnings have been volatile in recent quarters.

In November, the Chinese internet search giant reported EPS of $3 for its third quarter, crushing views for $1.85. Revenue growth turned positive after two down quarters, "with many advertising verticals turning around, putting Baidu in a good position to further benefit from a recovery in the Chinese economy," the company said.

Simultaneously, Baidu announced it would buy the China-based livestreaming operations ofJoyy(YY) for $3.6 billion in cash. "This transaction will catapult Baidu into a leading platform for live streaming and diversify our revenue source," CEO Robin Li said in a statement.

When Baidu next reports, analysts expect its earnings to plunge 35%, reflecting tougher year-earlier comparisons. They see Baidu EPS growing 20.5% in all of 2020, and a further 11% in 2021.

Baidu's revenue is likely to grow 7% in Q4. Analysts forecast a a 15% increase in 2021. Over the past three years, Baidu earnings averaged 1% growth with sales up 7%.

In 2016, Chinese authorities imposed new rules defining "paid search results" as a form of internet advertising. Those regulations weighed on Baidu's online marketing revenue.

Baidu Stock Basics

Baidu controls nearly 75% of search traffic in the world's biggest internet market. The company generates 80% of its total revenue from online marketing services, mostly from advertisements.

Many Chinese internet stocks had a rough past couple of years ashopes rose and ebbed for a U.S.-China trade deal.

In China itself, regulators are cracking down on the online tech giants for monopolistic behavior under antitrust laws. China is also concerned about data use and privacy.

Meanwhile, companies in China cut back on online advertising due to government regulation. Baidu also spent aggressively to pursue new growth opportunities. Some investments haven't panned out, while others — such as driverless cars — are yet unproven. That all affects earnings, and thus BIDU stock.

In Q3, Baidu's core businesses grew revenue 2%. Revenue at $(iQiyi)$, seen as the $(Netflix(NFLX))$ of China, fell 3%. Baidu's majority iQiyi business has more than 100 million subscribers but it's a lower-margin business, requiring costly investments to fend off Tencent Video, Alibaba's Youku Tudou and other rivals.

The flagship Baidu app combines search and news feeds.

Meanwhile, Baidu's new AI initiatives include DuerOS, a voice assistant for smart speakers, smart displays and smartphones. They also include Apollo, an open-source platform for self-driving cars, and Baidu Cloud, which offers tools for call centers and other enterprises.

Morgan Stanley expects the Chinese e-commerce market to grow by 18% in 2020, as it expands from consumers to businesses and governments.

IBD NewslettersGet exclusive IBD analysis and actionable news daily.SIGN UP NOW!Baidu Weighs The Coronavirus Pandemic

Amid the coronavirus pandemic, Baidu is focused on profitable growth and disciplined spending.

But Baidu's Q4 revenue guidance of -1% to 8% reflects "substantial uncertainty" ahead, the company said. If the economy sours, businesses that pay to place advertisements at the top of Baidu's search results are likely to slash ad budgets.

China's economic recovery from the coronavirus outbreak continues, a favorable sign for BIDU. Moreover, the pandemic could open up new opportunities. Spurred by Chinese government, Baidu, Alibaba and Tencent are all working on health technologies to diagnose cases and find a vaccine.

Nearly 2,000 hospitals across the country use Baidu AI for public health monitoring, drug development and disease diagnosis.

Baidu Stock Peers

BIDU stock ranks No. 5 out of 63 stocks in IBD's Internet-Content group. The group itself ranks a mediocre No. 53 out of 197 industry groups, and continues to act well.

Key stocks in this diverse group include Alphabet, Tencent,Facebook(FB),Match.com(MTCH) andCarGurus(CARG).

Is BIDU Stock A Buy Now?

Baidu is a quality stock, tapping new markets for growth. Wall Street expects Baidu earnings to rebound after the coronavirus hit in 2020. The company's earnings and revenue growth in 2021 is expected to easily outstrip the pace over the last three years.

However, Baidu belongs to a lackluster industry group. Investors should focus on top stocks in leading industry groups for the best shot at superior returns.

Technically, BIDU stock is well extended from its most recent breakout.

Bottom line: Baidu stock is not a buy right now. Investors could buy it on a pullback to key support levels or if shares form a new base. For now, it's best kept on your investing watchlist.

Source: Inverstors.com