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Author: TMFRichDad Big gold star, 5000 posts Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 89  
Subject: Re: 1% Baidu Date: 9/2/2008 5:46 PM
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Valuation
Even if I assume a 13% discount rate with a very conservative 50% growth rate yrs 1-5 years (for perspective, bottom line growth was up 108% quarter over quarter), then 25% yrs 6-10 with a 3% terminal, I value Baidu at around $410 per share. If I’m close, that would yield a safety net of about 20%. I consider this an exceptional deal for such a bright prospect.


Minor comment. I just find it exceedingly unusual that when projecting 50% growth for 5 years followed by 25% growth for another 5, that only a 20% margin of safety would be considered adequate. I'd guess that if you knocked that 50% growth down to 45% (holding everything else constant), your margin of safety would evaporate. Nothing wrong with buying a growth stock and ignoring valuation. Lots of money can be had that way, I'm sure. I just don't think it wise to kid yourself that you are buying value when I don't think you can reasonably say you are.

Assuming Baidu grows that fast, that long, how big will it be?

Bigger than Exxon? Bigger than Google? 5xGoogle? Bigger than US?

I could be way off in left field though. Never looked at Baidu.

Rich
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