Baidu Shares Plunged: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese Internet darling Baidu (NAS: BIDU) saw heavy selling pressure today, falling by as much as 12% before somewhat recovering into the close on news that the United States Department of Justice has launched a probe into Chinese accounting practices.

So what: The DoJ is investigating accounting irregularities at Chinese companies that trade domestically and went as far as to suggest that criminal and civil charges may be brought against offenders. No specific company was mentioned, but the whole sector sold off today as investors ran for cover. SEC director of enforcement Robert Khuzami told Reuters, "There are parts of the Justice Department that are actively engaged in this area."

Now what: Chinese tech stocks have been at the center of controversy lately, after numerous accounting scandals rocked the sector and investors and regulators alike were left with little recourse against companies since they are based out of China. With Baidu trading at 55 times trailing earnings, the stock is vulnerable to some mean selloffs when bad news hits. A lot of good companies get grouped with the bad unfairly, and I think Baidu is one of the better picks in the sector. Since no specific company was named in the report, investors are jumping to conclusions and dumped the shares on massive volume today, creating a buying opportunity for those who are willing to stomach swings.

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At the time thisarticle was published Fool contributorEvan Niuholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Baidu. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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