Closing Market Report
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China’s Baidu.com still overvalued even after plummet, analysts say
By Ellen Simon
Associated Press
NEW YORK » If Baidu.com Inc. were a band, it would be 'Nsync. The much hyped "Chinese Google" skyrocketed 354 percent on Aug. 5, 2005, the day it went public. Now it stands as one of the embarrassing investments of the last year.
Baidu's American Depositary Receipts, which climbed as high as $153.98, now trade below $58 a share. What could be even more cringe-worthy for Baidu investors is the future: After months of decline, analysts say Baidu is still overpriced.
Baidu's history, so far, is one of hope colliding with reality. The Beijing-based company went public at $27 a share, then climbed to $122.54 its first day of trading. Yesterday, the shares closed at $57.40, up 13 cents.
The shares began to slide within days, dropping below $100 within a week. After that, they swung dramatically. The stock lost a quarter of its value in one day after Goldman Sachs & Co. and Piper Jaffray, both underwriters of the company's initial public offering, issued research reports saying it was overvalued.
Despite its dramatic decline, Baidu remains "priced for perfection," Citigroup analyst Jason Brueschke said when he initiated coverage in January, months into the decline. In his next note on Baidu, he wrote, "Despite all the fundamental positives at Baidu, we still believe the company is trading above its fair value." Citigroup has a "sell" rating on Baidu.
Anthony Noto of Goldman, Sachs & Co. said he couldn't justify the company's valuation "on an absolute basis or relative to the sector." Baidu trades at a significant premium to both U.S. large-cap Internet stocks and leading Chinese Internet stocks, he wrote. The company's estimated price-to-earnings ratio for 2006 is 84.7 percent.