I read an article recently that suggested the growth in Baidu (NASDAQ:BIDU) stock from 2005 to 2015 — its first 10 years as a public company — was off-the-charts good.
However, in the six years since, BIDU stock has seriously underperformed.
As The Motley Fool’s Leo Sun pointed out, a $5,000 investment in its 2005 IPO is today worth approximately $330,500.
With its 16th anniversary as a public company upon us, anyone who’s still holding their shares bought in the IPO is sitting on a compound annual growth rate of 30.0%.
Very few public companies provide this kind of long-term return. Yet, it seems that the Chinese search engine hasn’t been able to keep the good times rolling.
Is Baidu stock a lost cause?
The Best Days for BIDU Stock May Have Passed
I was so intrigued by the juxtaposition of Baidu’s performance over the two time periods — 2005 to 2015 and 2016 to August 2021 — I put together a table of Baidu’s annual performance since its IPO.
Annual Return 2005-2021 (YTD through July 29)
| Year | % Return | Year | % Return |
| 2021 | -22.8% | 2012 | -15.0% |
| 2020 | 73.8% | 2011 | 20.7% |
| 2019 | -20.4% | 2010 | 138.8% |
| 2018 | -30.8% | 2009 | 218.7% |
| 2017 | 42.5% | 2008 | -67.4% |
| 2016 | -13.0% | 2007 | 253.9% |
| 2015 | -15.7% | 2006 | 79.2% |
| 2014 | 29.3% | 2005 | -45.5% |
| 2013 | 73.5% |
The first thing I notice about its annual performance is that it has eight years of negative returns — this includes 2021, which is almost two-thirds completed — and nine years of positive annual returns.
The average annual return of the down years is -28.8%. Conversely, the average of the nine years of positive annual returns is 103.4%. If the numbers were inverted, holding from the start would have been a backbreaker.
Thankfully, that’s not the case.
The last time I wrote about Baidu was in December 2020. At the time, I discussed the company’s plans to ratchet up its share repurchase plans.
In November 2019, I argued that the company should have been buying back its stock, given it was trading at $117. It’s gained about $50 in the 21 months since.
How much stock has it repurchased?
Well, page 173 of its 2020 20-F shows that it bought back 15.76 million American Depositary Shares (equal to one ordinary share) at an average price of $120.69. So, in 2020, it spent $1.9 billion on share repurchases. So, at the end of 2020, it had $2.78 billion left on its share repurchase program.
In Q1 2021, it bought back $300 million of its stock. We’ll see on Aug. 12, when it announces second-quarter results, how much it repurchased in the second quarter.
Free Cash Flow Is Healthy
In the trailing 12 months (TTM) through the end of March, Baidu had $3.2 billion in free cash flow (FCF). Approximately $400 million of its TTM FCF was in the first quarter.
If you exclude its investment in iQIYI (NASDAQ:IQ), FCF was 50% higher at $615 million.
In its Q1 2021 press release, the company said it expects Q2 2021 revenues to grow by 14% to 25% in the quarter, with $4.75 billion in revenue at the midpoint. Baidu’s core revenue is expected to grow by at least 20%, but perhaps as high as 33%.
Perhaps that’s why InvestorPlace’s Nicolas Chahine called it a major bargain in mid-July.
“Management grew its revenues more than 30% in four years. They did it while improving margins, because they also grew net income 160%,” Chahine wrote on July 13. “However the stock appreciation lagged so now the stock is cheap. BIDU has a single digit price-to-earnings ratio, and a 3.7 price-to-sales.”
Chahine suggested that buyers would step in when its shares fell below $165. That appears to be precisely what happened.
On July 26, BIDU closed at $162.37, down 6% on the day. It fell another $4.54 on July 27. It’s since jumped back above $165. From Baidu’s 52-week and all-time high of $354.82 reached in February, it’s lost 53% of its value.
I’m with my colleague on this one.
Baidu’s business is in excellent shape. That’s reflected in the fact that 31 out of the 36 analysts who cover BIDU stock call it a buy at the moment.
If you can get some under $165, perhaps even as low as the $150s, you absolutely should. I’m confident Baidu itself will be buying at these prices.
The glass is half full, in my opinion.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.