Global

Baidu, Inc. (BIDU) vs. Cytosorbents Corporation (CTSO): Which is the Better Investment?

Baidu, Inc. (NASDAQ:BIDU) shares are up more than 21.29% this year and recently increased 4.47% or $12.15 to settle at $284.07. Cytosorbents Corporation (NASDAQ:CTSO), on the other hand, is up 44.62% year to date as of 05/16/2018. It currently trades at $9.40 and has returned 17.50% during the past week.

Baidu, Inc. (NASDAQ:BIDU) and Cytosorbents Corporation (NASDAQ:CTSO) are the two most active stocks in the Internet Information Providers industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect BIDU to grow earnings at a 2.53% annual rate over the next 5 years.

Profitability and Returns

Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. BIDU’s ROI is 6.40% while CTSO has a ROI of -45.20%. The interpretation is that BIDU’s business generates a higher return on investment than CTSO’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. BIDU’s free cash flow (“FCF”) per share for the trailing twelve months was -0.89. Comparatively, CTSO’s free cash flow per share was -0.08. On a percent-of-sales basis, BIDU’s free cash flow was -2.37% while CTSO converted -0.02% of its revenues into cash flow. This means that, for a given level of sales, CTSO is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. BIDU has a current ratio of 2.00 compared to 6.10 for CTSO. This means that CTSO can more easily cover its most immediate liabilities over the next twelve months. BIDU’s debt-to-equity ratio is 0.41 versus a D/E of 0.69 for CTSO. CTSO is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

BIDU trades at a forward P/E of 22.28, a P/B of 5.04, and a P/S of 6.84, compared to a P/B of 19.18, and a P/S of 16.48 for CTSO. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. BIDU is currently priced at a 5.17% to its one-year price target of 270.11. Comparatively, CTSO is -21.67% relative to its price target of 12.00. This suggests that CTSO is the better investment over the next year.

Risk and Volatility

No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. BIDU has a beta of 1.87 and CTSO’s beta is -0.09. CTSO’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment




Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. BIDU has a short ratio of 1.66 compared to a short interest of 7.95 for CTSO. This implies that the market is currently less bearish on the outlook for BIDU.

Summary

Cytosorbents Corporation (NASDAQ:CTSO) beats Baidu, Inc. (NASDAQ:BIDU) on a total of 7 of the 14 factors compared between the two stocks. CTSO is growing fastly, has a higher cash conversion rate and higher liquidity. CTSO is more undervalued relative to its price target.

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