Google This: The Right Price
It brings back memories of the dot-com boom and bust. What\'s different this time? Real growth and honest profits.
Scott Kessler has followed Internet companies as an investment analyst at Standard & Poor\'s since 1998. His rating on Google: Hold.
What\'s up with Google? The stock (symbol GOOG) started trading at $85 a share in August 2004 and recently hit $415. Is the run-up justified? Google did an excellent job delivering growth and financial performance. Earnings will grow an annualized 40% for the next five years. Its revenues from Internet search ads are eye-popping, approaching $10 billion this year. Yet the ratio of Google's stock price to its earnings growth rate is 1.3. That's cheaper than the tech average and the overall market.
So the stock's a bargain? No. I'm not telling people to sell the shares, but I'm not recommending them either. In 2006 and 2007, competitive issues will start to have an impact on the company's growth prospects and profit margins. A year ago Google had one decent competitor, Yahoo. Fast forward one year. You've now got a formidable competitor in Yahoo, focused and aggressive competition from Microsoft, and a wild card in Ask Jeeves, recently acquired by IAC/InterActive. I don't think a lot of people appreciate that Google is not diversified in terms of revenues.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Are there lessons we're missing from the dot-com disaster? This stock embodies a lot of strong emotions. Momentum players, who pile in when prices are rising and sell when prices reverse, are getting into Google. Wall Street analysts are by and large very bullish. All this is reminiscent of five years ago, just before the bear market. The obvious distinction is that Google is a profitable, ongoing operation. But when any stock goes from $85 to $415, prudence dictates that you take some money off the table. One of the lessons of the dot-com era is that prudence, more than patience, is a virtue.
Are there Internet stocks you like better? A few weeks ago I would have recommended Yahoo, but its price is no longer reasonable. We see better value in some small and midsize companies, such as IAC/InterActive (IACI). Besides Ask Jeeves, its brands include Home Shopping Network, LendingTree and Match.com. We also like RealNetworks (RNWK), a bear-market survivor and a leading provider of subscription music and games.
-
Is 100 the New 70?
Eating well, exercising, getting plenty of sleep and managing chronic stress can help make you a SuperAger. Funding that long life requires longevity literacy.
By Phil Wright, Certified Fund Specialist Published
-
Nine Lessons to Be Learned From the Hilton Family Trust Contest
Disclaimers, good communication, post-marital agreements and more could help avoid conflict in a family after the owners of a wealthy estate pass away.
By John M. Goralka Published
-
Stock Market Today: S&P 500, Nasdaq Extend Losing Streaks
The two indexes have closed lower for five straight sessions.
By Karee Venema Published
-
Stock Market Today: Dow Slips After Travelers' Earnings Miss
The property and casualty insurer posted a bottom-line miss as catastrophe losses spiked.
By Karee Venema Published
-
Stock Market Today: Stocks Stabilize After Powell's Rate-Cut Warning
The main indexes temporarily tumbled after Fed Chair Powell said interest rates could stay higher for longer.
By Karee Venema Published
-
Stock Market Today: Stocks Reverse Lower as Treasury Yields Spike
A good-news-is-bad-news retail sales report lowered rate-cut expectations and caused government bond yields to surge.
By Karee Venema Last updated
-
Stock Market Today: Nasdaq Leads as Magnificent 7 Stocks Rise
Strength in several mega-cap tech and communication services stocks kept the main indexes higher Thursday.
By Karee Venema Published
-
Stock Market Today: Stocks Tumble After a Hot Inflation Print
Equities retreated after inflation data called the Fed's rate-cut plans into question.
By Dan Burrows Published
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation Reading
Equities struggled before tomorrow's big Consumer Price Index report.
By Dan Burrows Published
-
Stock Market Today: Stocks Closed Mixed in Choppy Trading
Volatility returned as market participants adjusted their expectations for rate cuts.
By Dan Burrows Published