Google, Inc. (NASDAQ:GOOG)

ProfyB (79.60) Submitted: 8/19/2009 5:46:39 PM : Start Price: $507.09 GOOG Score: -23.86

I think Google has an amazing business model and it's a great company, but Google's stock is far less impressive than the company. The main problem with Google's stock is ironically Google's success. Google is now worth over 100 billion dollars with a price/earnings ratio of over 30. Now I would consider a P/E of 15 or so to be normal. I would only invest in a company with a P/E of 30 if I was expecting a huge amount of growth, in fact that's what most people do. Higher P/E equates to higher expectation of growth. A company like Microsoft is already seen as a giant with a low potential for growth so it's trading at a P/E of 13. Why do I think Google is going to have a hard time to grow? It's simple mathematics, the bigger you are the more you need to make to obtain the same rate of growth. A company worth 1 billion dollars only needs to increase it's value by 1 billion dollars to double your investment. Google has to increase it's value by 100 billion to double your investment. Needless to say, it's easier to make 1 billion than it is to make 100 billion. Now I'm not saying Google stock is a terrible investment, but it's size limits the return it will provide to investors. So while you might be able to make some money in Google stock, you'd probably make a lot more money elsewhere, even if those companies don't have a business model as brilliant as Google's.