A great short-story

I usually don't deal with single stocks on this blog, but I have had a few nice short stories to tell, and I'm tired of having draft post that never make it to publication. So here's the first short story I'm publishing, it's about Baidu.

So Baidu, is a Chinese Google, or so it seems. Being a technology expert, I have a lot of respect for Google, and I know how difficult and complex it is to replicate everything that I have done.

A couple of weeks ago, Baidu (BIDU) was trading at around $88 a share, and a PER of 100. This makes the Nasdaq bubble ridiculous: BIDU was benefiting both from the current bubble in worldwide equity, and from the "Chinese" keyword bubble. The same way at you had to have ".com" in your company name in the 2000, now you must have "China".

If these were not just enough to make it one of the best short opportunities of the year, here are a great deal of other stories around the stock:

China's search market by revenue grew 53.2 percent in the second quarter to 2.64 billion yuan ($390 million), data from technology research firm iResearch showed on Monday.

Baidu's (BIDU.O) share of the market rose to 70.8 percent in the second quarter from 67.8 percent in the first quarter, as the firm ate into Google's (GOOG.O) market share.
A PER of 100 implies doubling the profits 3 years in a row before hitting 12.5, if everything else stays the same (stock price doesn't move being one of the big 'ifs'). How do you expect this to happen when you already have 70% of the market share? And if you add the high probability of major depression in China and worlwide?

Chinese search engine giant Baidu is considering developing and releasing a mobile phone operating system, according to Chinese media reports. 
The effort would be led by former Google employees who defected to Baidu after Google defied the Chinese government by ending self-censorship of its search results. The report comes amid other Baidu moves to break into new areas as it seeks growth outside of search, such as e-commerce, online video, social networking, and even browsers.
Yeah, right. As if Google wasn't having enough difficulties building its OS after acquiring Android and several years of development, now Baidu will compete with them? Competition is already extremely fierce: iPhone, Blackberry have almost killed Nokia and Sony-Ericsson and Motorola...

Side note: the Chinese employees that left Google because Google didn't want to censor its results and wanted to promote freedom of speech in China... were they actually Google employees? This sounds more like Chinese Gov's employees to me!

Baidu trades at a price-to-projected-earnings ratio of 34, a price-to-book ratio of 31 and a price-to-sales ratio of 33, 39%, 820% and 197% premiums to Internet software peer averages. 
 And I haven't event started mentioning the likelihood of double accounting books and major financial scandal...

Technically, the stock is vulnerable: it's been rising relentlessly, without any real correction, since the lows in March 2009 to now, from $18 to $88, that is about 450%. Also worth nothing, it just closed below it's 50MA. Next support is 200MA: $60. About 20% lower than today.

Anyway... you know my stance, I put my money where my mouth is. Last time I shorted the stock it was trading at $83 a share. I think the target range for BIDU is between $20 and $10. Wait&Pray

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