So dominant it’s a verb, Google is the leading internet search provider and uses its proprietary algorithms to offer targeted advertising.
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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.
I bought more GOOG today at $595, which is more than double the price at which I originally bought it. I see its rise continuing as it keeps expanding in various directions. See the pitch by rofgile yesterday.
You guys talk accounting all you want. But let's not forget that the new Android Mobile Phone operating system (OS) is going to be HUGE!!! This OS is revolutionizing the huge industry of mobile calling. It is being adopted at an incredibly fast rate (currently 60,000 phones per day are being sold).
Combine this OS with GOOG's impressive cloud processing structure and you have an unbeatable combination. Can you think of a larger, faster growing, more important technology right now in the world than mobile phones? I liken this to the original computer race in the 80's when it was the PC vs Mac. Apple lost this battle for one simple reason. Open system. Any manufacturer could create a PC and install custom software to meet the needs of its clients. NOT so with Apple.
This time is does appear that Apple has learned a thing or two since they opened up their hugely popular App store and have been encouraging the sale of custom 3rd party apps. But Apple still has a Draconian approval system that limits complete adoption of the platform. Throw in that the iPhone is an AT&T Exclusive and you have a one-two punch that will doom the iPhone to mediocrity unless they move the iPhone to other networks.
However Android is open source which means any manufacturer can create a phone using this OS and instantly have virtually unlimited resources already available. And boy are they doing just that! (like I said, 60,000 phones per day are selling worldwide). And software makers are getting on the band wagon too. The number of Apps in the Android app store doubled from November to December of 09, and has been increasing very quickly ever since. Android phones are on every major network now, and offered by many of the big phone manufacturers. Motorola for example is going to release 20 different Android phones this year. This will ensure that what ever configuration Android phone you want, there will be one available.
Consumers love choice, and Android has it! And who do you think benefits from all of this? The company at the foundation... GOOG!