$585.74
-1.77 (-0.30%)
Google, Inc. (GOOG)
CAPS Rating:
The Company provides targeted advertising and global internet search solutions as well as intranet solutions via an enterprise search appliance.
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There are a lot of Google naysayers out there because it's the hottest company around these days. But I think anyone who tells you not to buy Google is crazy. People say it's overvalued. According to the S&P, Google's fair value today is $533. Its P/E is around 30, which is much lower than it has been in years, and its 5yr sales and EPS growth rates are in the 60's, which puts its PEG below .5. The company has no debt and obscene amounts of cash. Don't believe the naysayers. Buy Google.
I bought in (with real money) on Nov. 12, 2008 when the stock was $293.54. But it has been over $700 and can, I believe, go higher. The recession has beaten Google's stock down but hasn't dimmed the company's prospects. I plan to ride it as high as it goes and to buy more on dips.
A P/E ratio of 30 is crazily high. It may not be as high as dotcoms pre-that bust, but if investor enthusiasm dims for it at all, and say the P/E falls to 20, that's 1/3 of the value lopped off. Seems pretty scary if you ask me. Yes, it was a 700 stock once. But its going to take a while (in my opinon) for advertising to come back enough to grow earnings substantially.
I'm with you all the way. There's no denying that Google still sports obscene profit margins, superb investment returns and zero debt. Under $400 is a steal in my opinion, though I'd still nibble at it at current prices. The world will continue to be its oyster....it's just a matter of time. It's also time to hit the Bean! wallstreetbean.com
Thanks guys! It adds some confidence to new investors like me.
Playing with virtual money here and slowly planning to put in real. Keep posting if you have any suggestions.
The PEG ratio mentioned above is one good way to value a stock.
Defined: The PEG ratio (Price/Earnings To Growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth.
In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies overvalued relative to low growth companies. By dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates.
The PEG ratio is considered to be a convenient approximation. It was popularized by Peter Lynch, who wrote in "One Up on Wall Street" that "The P/E ratio of any company that's fairly priced will equal its growth rate", i.e. a fairly valued company will have its PEG equal to 1.
GOOG P/E is now 30. If you believe they will grow earnings at over 30%, then the stock is undervalued. If they will grow at less than 30% they are over-priced. If they will grow at 30%, they are fairly priced. It's a quick way to estimate value, but certainly not the only way or a can't-fail way.
Read all you can about the investing approach of greats like Peter Lynch and Warren Buffett.
Remember, stock prices eventually come down to the ability to grow earnings. It's easy to grow sales if you sell at a loss - anyone can give stuff away. It's hard to grow sales and make profit - even harder to grow sales and raise profit margins.
I look for companies that can grow sales, profit margins and have low debt compared to competitors. I like strong brands as brands command higher prices, higher margins and can fend off competitors. I look for the best company in their business which isn't always the biggest in a business. Those are the ones that win the war and who's stock will command a premium price, a PEG over 1 and sometimes 2. GOOG is a good example.
You can't look at the PE by itself and say whether it is high or low. A PE of 30 is low if the company is growing faster than 30% per year. A PE of 5 is high if the company is not growing at all (or worse - shrinking). The problem with high PE levels (greater than 2x S&P) is that if the company has a break in its growth, it will drop significantly. On the other hand, if the company does well, you will make a lot of money (higher risk - higher potential reward).
Google, with a PE of 25-35 and a steady growth is a good investment. The question is not is the PE too high. Instead, the question is - can Google continue to see high growth. I believe it will continue to grow and grow well. However, it is getting to the size where great growth is still only a small percentage increase. From that point of view, a PE of 30 is a bit high, but since it has a decent chance of growth on the high side, it is not unreasonable. Personally - I would not buy Google. On the other hand, many people have lost lots of money trying to bet against Google.
You can't look at the PE by itself and say whether it is high or low. A PE of 30 is low if the company is growing faster than 30% per year. A PE of 5 is high if the company is not growing at all (or worse - shrinking). The problem with high PE levels (greater than 2x S&P) is that if the company has a break in its growth, it will drop significantly. On the other hand, if the company does well, you will make a lot of money (higher risk - higher potential reward).
Google, with a PE of 25-35 and a steady growth is a good investment. The question is not is the PE too high. Instead, the question is - can Google continue to see high growth. I believe it will continue to grow and grow well. However, it is getting to the size where great growth is still only a small percentage increase. From that point of view, a PE of 30 is a bit high, but since it has a decent chance of growth on the high side, it is not unreasonable. Personally - I would not buy Google. On the other hand, many people have lost lots of money trying to bet against Google.
Now that things are slightly turning around, you will see google explode on the markey
I would not value S&P's opinion much. They are wrong (unfortunately) more than they are right. Their valuation seems to be driven by technical indicators and, for practical purposes they have advised, strongly to steer clear from financials, it just happens to be the sector is performing best since march..
You said:
"According to the S&P, Google's fair value today is $533"
In my opinion, Google shares could drop 50%, and the drop could totally be justified. The only reason to buy this stock at this price, is because this is a "Bandwagon" stock, and the bandwagon probably won't stop for quite some time. However, this bandwagon approach is a bad one, and for this reason I do not invest in Google.
You made money off of google a 250, that is a totally different ball game than the price right now.
I agree, Caligiuri, that Google is a totally different ballgame now, though I don't think it'd be justified if it dropped a full 50%. At this price Google is slightly overpriced, so I wouldn't buy it now. But I'm holding, not selling, because I think Google is more than a bandwagon stock. I stand by what I said in May: Google is still at least one of the hottest companies around, by which I don't just mean that it's a hot (and therefore dangerous) stock. It's a hugely innovative company with some of the best talent around and a great balance sheet. I'm keeping my upthumb because I think it'll go higher, though there may be some bumps ahead in the near term, which could bring its price back into buy range.