Baidu Inc (ADR) (NASDAQ:BIDU) is becoming a momentum stock according to a report from The Street. The financial news outlet says that shares in the Chinese internet phenomenon is based on research from Trade-Ideas LLC. Stock in Baidu has risen by more than 95% in the last twelve months, and the company’s P/E ratio sits at more than 37, which is considered a very high valuation.
According to Trade Ideas report, Baidu Inc (ADR) (NASDAQ:BIDU) shares characteristics with momentum plays, and should be considered in those terms. A momentum stock is one that tends to be traded semi-arbitrarily, without reference to the events occurring to the company or its financials. The volatile that trends in such stocks makes them an attractive bet for some investors, but they have been known to cause huge losses for those who bet unwittingly.
Baidu stock goes off the rails
The Trade Ideas report points to several factors to support the idea that Baidu Inc (ADR) (NASDAQ:BIDU) is trading on momentum: the company’s average dollar-volume is around $525 million, an extremely high number; the company is in the upper 30% of its one-year range; it’s in the upper 35% of its five day range; it’s trading above yesterday’s high and there was a jump in price between today’s and yesterday’s price.
Assuming that the company’s shares are trending upwards and a good target for momentum traders, today has been a good day for those who got involved early. The company’s shares have risen by more than 1.5% since trading began on Monday morning. Getting in now may be too late, however, and that might be a good thing for many investors considering investing in Baidu Inc (ADR) (NASDAQ:BIDU).
A different kind of trader usually involves themselves in momentum trading. They tend to be fascinated by the technical complexity of the market, and its potential offer of unlimited earnings, more than the actual value of a company. Investors who are not used to trading this way should usually stay away from stocks that rely on this kind of trading. Momentum movers have a way of rising very high and then entering what The Street is kind enough to call a “distribution period” in which the price can collapse.
Baidu heads towards earnings
Baidu Inc (ADR) (NASDAQ:BIDU) is one of the only true giants in the Chinese web world. The company’s market cap of $66 billion is only truly rivaled by Alibaba, which has not gone public yet. The firm is facing difficulties in recent years, however, as it attempts to transition its Google-like advertising model to the mobile world. The company’s financial situation, which doesn’t matter to the short term momentum traders, will become clearer on the release of its next report.
Earnings for the second quarter from the company are due to be released on July 24. Analysts surveyed by Bloomberg are expecting the company to show EPS of $1.36 per share for the three months by consensus. Revenue for the quarter, which the company records as its second of fiscal 2014, is expected to come in at $1.9 billion according to the same survey.
