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Is Google a Buy, Hold or Sell? - Risk/Return Analysis
Is Google Inc. (NASDAQ:GOOG) a Buy, Hold or Sell? Not knowing what kind of performance you’re paying for makes it challenging to answer. It would be just like asking, do I take the over/under in the Super Bowl without knowing the over/under line.
One of the benefits we deliver to our clients, in our suite of tools, is understanding companies’ value expectations. This helps clients gage the Risk/Return characteristics of a company using our Economic Margin Framework. The Value Expectations interface allows clients to perform a sensitivity analysis using value drivers that are accessible to most investors. The engine of Value Expectations uses our Economic Margin framework which encompasses a valuation system that explicitly takes into account profitability, competition, growth, and the cost of capital. Unlike traditional valuation approaches that utilize highly sensitive perpetuity assumptions, our approach incorporates the widely accepted economic principle that competition will erode excess returns over time.
To help us better understand Risk/Return characteristics of Google Inc. (NASDAQ:GOOG), we performed three distinct scenarios to provide insight into Google’s intrinsic value based on implied performance levels.
Google had a very nice run in 2009, with its stock up over 100%. However, so far in 2010, its shares have lost steam, down just over 12% and underperforming the tech sector. For the first scenario, we used the Value Expectations Interface to understand the sales growth expectations currently embedded in Google’s stock price. The chart below illustrates that if you assume EBITDA margins and asset turns remain at 3 year median levels, Google must deliver 14% sales growth over the next four years to justify its current trading price of $542. Analysts currently expect the company to grow sales by 18.5% in 2010 and 15.3% in 2011, on average.
VE Source: The Applied Finance Group
*2009 Value drivers are based on Google’s preliminary FY09 results.
For a sensitivity analysis, we also used the Value Expectations Interface to understand the sales growth expectations needed to justify a $450 price (GOOG last traded here in the middle of summer), and a $650 price (it almost reached this point at the end of the year). To justify trading at $650 Google would need to grow sales by 19% over the next four years. To justify a $450 price tag,Google Inc. (NASDAQ:GOOG) would need to grow sales by 9% over the next four years.
VE Source: The Applied Finance Group
*2009 Value drivers are based on Google’s preliminary FY09 results.
VE Source: The Applied Finance Group
*2009 Value drivers are based on Google’s preliminary FY09 results.
So is Google a buy, Hold or sell? The answer for any investor should be driven on what kind of reasonable performance the investor believes Google can achieve.
The Value Expectations interface is a great tool for understanding what a company must deliver in sales growth to justify its current price, as well as understanding what expectations are necessary to justify previous trading prices or future price targets.
Let us see now,
GOOGLE a company US Constitutional RePUBLIC paid for and now PRIVATIZATION (kids) of the richest bankers (Goldman Sachs, et al.) own this as INSTAPRENEURS, a brand new kind of billionaire to run America's future digital slavery camp Gaza II.
How cute to invest in this.
F. W. Engdahl's "GODS OF MONEY" is a pre-primer to read before investing in any further of America's demise via the digital software frauds of bubbles forever and ever.
Google is a conviction "who cares; it all depends on what the overall market does."
It's way, way late to be wasting your time looking at the stock exchange. Analysis my foot; doesn't mean anything. a sinking tide lowers all boats.
I don't get how a company that doesn't pay a dime in dividends could be rated a buy. Not unless you admit it's a pure casino bet. For me, it's the same story with Apple. Apple hasn't paid a dividend since, I think, 1995. Don't these companies have a wad of cash sitting around? Why not pay the shareholders a little something? Oh, I forgot...dividends went out of style about when 401(k)s and IRA came onto the scene...
So I guess we're finally back to the days of idiosyncratic risk and pie in the sky "fundamental" analysis.
When will people learn that the DXY is the only thing that matters these days?
Analysts should stop releasing price targets and instead start pushing alpha targets + or - the S&P.
Neither.
hype it up! hype nation!
Here's what Phil's doing at Phil's Stock World with respect to Google: http://www.philstockworld.com/2010/01/29/thank-gdp-its-friday/ (hopefully the chart is not cut off here)
From Phil in today's morning update: "Meanwhile, I have a message for the sheeple: Please keep selling us your Google stock. I think this chart of the day is self-explanatory but you never know. This is a chart of the amount of money Google makes per employee, per quarter. Currently they are generating $1.34 MILLION dollars for each person they hire (and they’ve been hiring). For a comparison, Yahoo generates $500,000 per employee yet GOOG currently has a p/e ratio that is 1/2 of Yahoo’s.
Microsoft’s 98,000 employees generate $623,000 each, ORCL’s 86,000 employees pull in just $267,000 each. It’s not a definitve indicator but consider how well they have managed that number through the recession, which seems to have interrupted some pretty impressive growth. I think Google is an exceptional bargain here and you don’t have to pony up $534 a share to play along. The bull call spread, buying the June $490 calls for $64 and selling the June $500 calls for $57 is net $7 on the $10 spread so if Google holds $500 or higher through June 18th expiration, you make $3 (42%). 42% in six month is nothing to sneeze at and keep in mind that the bet is that GOOG does not FALL MORE THAN $34 between now and June.
Keep in mind that you have to buy options in 100-contract blocks so you need $700 to make $300 but to make $300 with as much Google stock as you can afford with $700 (1 share), you would need Google to climb to $884 by June expiration. This way is probably easier, don’t you think? You can still set a stop at a $100 or $200 loss so it’s not particularly riskier than buying a share of stock but the upside is SO MUCH better! If you want to get even fancier, you can even offset the entire cost of the trade by selling the June $430 puts for $7.20. The catch there is you need margin and, if GOOG drops below $430, you will own it (have it "put to" you) but if you like the idea of either owning GOOG at $430 OR getting a free $10 if GOOG holds $500 - this is a fun way to play!"
You need to look at the margins. Oracle does a lot of sales and consulting in its enterprise division then the database s/w. Not quite comparable, yahoo yes. And google is getting into the mobile/device area more lately, so their employee/$ ratio will lower on its own.
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nice