Introduction
In recent weeks, Google has lost close to 10% of it’s’ per share value. It has plummeted from $500 to $460 within a span of a few weeks. Most people speculate that Google is an over-valued stock and it is destined for a bearish future. Others believe that Google will grow at a constant pace as it continually redefines the entire Internet marketing and searching experience. What is StockRocks take on this growing company who has captured the attention of its’ shareholders since it went public?
Fundamental Analysis
Google reported excellent earnings for 4Q ending 2006. Their earnings came in at $1.03 Billion, or $3.29 per share for the last three months. Compare this to only $372.2 Million, or $1.22 per share in 4Q in 2005. In 2007, analysts estimate that Google is expected to earn an average EPS estimate of $12.69 for the year or an average of $3.17 per quarter. These figures are stunning and indicate a very bullish year for Google.
In recent weeks, Google has lost close to 10% of it’s’ per share value. It has plummeted from $500 to $460 within a span of a few weeks. Most people speculate that Google is an over-valued stock and it is destined for a bearish future. Others believe that Google will grow at a constant pace as it continually redefines the entire Internet marketing and searching experience. What is StockRocks take on this growing company who has captured the attention of its’ shareholders since it went public?
Fundamental Analysis
Google reported excellent earnings for 4Q ending 2006. Their earnings came in at $1.03 Billion, or $3.29 per share for the last three months. Compare this to only $372.2 Million, or $1.22 per share in 4Q in 2005. In 2007, analysts estimate that Google is expected to earn an average EPS estimate of $12.69 for the year or an average of $3.17 per quarter. These figures are stunning and indicate a very bullish year for Google.
With the recent purchase of YouTube.com for $1.65 billion, a popular video viewing website receiving millions of hits each month, Google has expanded its horizons in capturing the media market. In addition, recent news indicates that the company is getting ready to purchase Adscape, an in-game advertising company. One thing for sure, Google is definitely growing and they are purchasing various sectors of the Internet market.
Google is definitely taking market share away from one of their largest competitor, Yahoo. Google’s market capitalization at $143 Billion is more than triple Yahoo’s at $43 Billion. Even though Yahoo’s management is repositioning itself and revamping its strategic marketing, it will be some time before Yahoo regains pace with Google.
Let’s take a look at the stock price of Google. The market has set a price of $469.94/share at the end of Friday’s trading day. As I mentioned earlier, Google’s stock price has been down close to 10% and that’s okay. With profit taking and news about the economy slowing down, the market can be very volatile. Ignore it! Let’s take a look at 2008’s forward P/E of $37. Combine this figure with the 2008 EPS estimate of $17 and Google’s future per share value is $629. Applying a discount factor of 10% to match the S & P 500’s yearly returns will give you a present value of around ~$520. The intrinsic value of the stock at $520 compared to what the market sets at $469 has a margin of safety of 10%. Our stock valuation indicates that Google’s stock is attractive.
Technical Analysis
Let’s observe some technical indicators.
MACD (Moving Average Convergence Divergence) : The MACD line is slowly creeping up towards the signal line. The MACD line has been floating below the signal line in the past few weeks, as exhibited by the stock falling. If the MACD crosses the signal line, it is a good entry point.
ROC (Rate of Change) : The ROC indicator had a negative slope and appears to be flattening at the bottom and should pick up and shift upwards.
Bollinger Bands : The graph indicates that the recent price of the stock has been bouncing
off the lower standard deviation of the Bollinger bands. This behavior is more likely a result
of the stock being oversold. I would expect the stock price to bounce off the lower Bollinger band a second time to confirm an upward shift in momemtum.
Summary
Google has a positive future outlook. The company will grow at a fairly constant rate, putting more money in shareholder’s pockets. Again, this is based on my own research and due diligence. I am not providing a recommendation on the stock. Please use this information at your own risk.
off the lower standard deviation of the Bollinger bands. This behavior is more likely a result
of the stock being oversold. I would expect the stock price to bounce off the lower Bollinger band a second time to confirm an upward shift in momemtum.
Summary
Google has a positive future outlook. The company will grow at a fairly constant rate, putting more money in shareholder’s pockets. Again, this is based on my own research and due diligence. I am not providing a recommendation on the stock. Please use this information at your own risk.
Note : All images are courtesy of MSN.com and StockCharts.com
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