Is Baidu Finally Bouncing Back?

Baidu investors finally caught a break yesterday.

Shares of China's leading search engine soared 6% on Wednesday. The stock hasn't had a single-day rally this strong since last summer.

There wasn't any Baidu-specific news to trigger the run, and it's not as if the bulls have any dibs on "I told you so" bragging rights. Baidu's stock is merely recovering after hitting a two-year low last week. Even after yesterday's pop, Baidu has been absent from this year's tech rally with its own shares trading 17% lower in 2013.

Baidu's fallen out of favor since Qihoo 360 introduced a rival search engine last year. Even though Qihoo's 13% share of China's search market has come largely at the expense of non-Baidu rivals, worrywarts fear that the presence of a legitimate competitor will slow Baidu's already decelerating revenue.

Baidu's still growing. Analysts see revenue and earnings climbing 43% and 21%, respectively, when the former dot-com darling reports its first-quarter results later this month. Thinning margins and a seasonal sequential decline in revenue are problematic, but bargain hunters will be quick to point out that Baidu is trading for just 13 times next year's projected earnings. That appears to be too cheap for a market leader that is growing considerably faster than that.

Baidu has historically traded at a forward earnings multiple that's in line with Russian leader Yandex and at a healthy premium to global top dog Google, but Baidu's slide has rewritten those rules. Baidu's now trading at a much cheaper multiple than Yandex, and it's even fetching a discount to Google which happens to be changing hands these days at nearly 15 times next year's projected profitability.

A strong quarter on April 22 could change that, of course. Proving that it can continue to post strong results as Qihoo 360 would go a long way toward restoring faith in the out-of-favor company that became the poster child of China's Internet revolution. If so, Wednesday's comeback rally will be the first of many to come.

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The article Is Baidu Finally Bouncing Back? originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Baidu, Google, and Yandex. The Motley Fool owns shares of Baidu and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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