Chinese search giant Baidu (BIDU) has followed up an incredible 2014 with a decidedly unimpressive 2015. After ripping off 28% gains last year, the Baidu stock price is already off roughly 10% year-to-date.
But shares of the Baidu, affectionately known as the Chinese Google (GOOG, GOOGL), are about to get their groove back, for a few reasons — one technical and the other fundamental.
BIDU stock started trading higher in afternoon trading on Wednesday — something I think we’ll see a lot more of in the months and years ahead.
A Technical Breakout
On Wednesday, BIDU stock challenged its 50-day moving average, a bullish technical signal that many traders watch closely. A breakout above the 50-day moving average means short-term momentum is gathering, and that certainly appears to be what’s happening with BIDU.
BIDU stock’s technical picture is starting to improve. As you can see in the chart above, BIDU has already broken through its 20-day MA and recently used it as support for its current bounce. Now Baidu stock is challenging its 50-day MA, and a break above this average would signal that BIDU’s short-term momentum still has a head of steam on it.
Should BIDU’s current attack on the 50-day prove successful, the next important average for Baidu stock is the 200-day MA sitting around $217-$218, which represents roughly 7% upside from here.
But it’s not just technical indicators that are going for BIDU. The underlying business is doing some interesting things, too.
The Fundamental Case
Baidu, despite its lackluster performance thus far in 2015, is still an exciting company. Revenue growth is supposed to clock in at 38% this year and 32% in 2016. That sort of growth is rather amazing, especially considering Baidu’s already-massive $72 billion valuation.
It’s the sort of growth that Apple (AAPL) can’t dream of today, and the kind that Baidu’s Chinese peers are unlikely to achieve. Expected revenue growth at other Chinese tech behemoths like Sina (SINA) Sohu.com (SOHU) and even Alibaba (BABA) are all inferior to BIDU’s.
That’s partially due to Baidu’s ambitious global expansion plans. Seeking out the pockets of the globe where it can grow the most rapidly, BIDU is attempting to conquer Latin America next. Its search engine went live in Brazil last year.
But the geographic roots aren’t quite ingrained thoroughly enough. According to ZDNet, Baidu is considering setting up its next Latin American base in Argentina, Chile or Mexico.
Taking a page from Google’s playbook, Baidu also aspires to be more than just a search engine, and recently teamed with Daimler to work on a “connected car” in China. More and more, software is becoming a vital selling feature in the automotive industry; BIDU, intelligently, would rather lead than follow.
If Baidu can emerge as an early leader in China’s burgeoning automotive software market, that could mean big bucks — and big returns for BIDU stock — in the years to come.
As of this writing, John Divine was long shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
