

A Google Reality Check - dpapathanasiou
http://seekingalpha.com/article/51114-a-google-reality-check?source=feed

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byrneseyeview
This is why I hate Seeking Alpha: they can stretch a factual sentence ("Google
is overpriced, given their P/E of X, because a fair P/E is Y.") into a whole
article -- with fewer actual facts. I like how, for illustration, they
(almost!) told us Google's past growth rate. That to defend the statement that
"Although this exponentially growing income is really unprecedented it is a
huge mistake to assume it can continue."

Thanks. Everyone I know who owns Google stock also thinks their growth rate
will be exactly has high in the future as it was in the past. We all expect
GOOG's market share to hit 47291% in a decade.

Did the writer just not bother to consider his assumptions? Look at a chart of
Google's stock price and P/E:
<http://www.byrneseyeview.com/pictures/googwithpe.gif>

Their earnings are going up _faster_ than their price. If investors think
Google's growth rate is this high permanently, why has the stock's P/E dropped
about 70% from peak?

"It is my contention not that Google is necessarily overvalued, but only that
investors in the stock at these levels, if they think it is not overvalued,
must realize what they are conjecturing as to the company's growth."

Thanks. So it might be expensive. And it might not. And investors should keep
that in mind. Yes, that's what he's saying: investors should be aware that
buying Google is not necessarily as safe as just keeping their money in cash.

"Let us think about what the current implicit future growth rate suggests
about the dominance of this company in our economy. Within ten years, Google
will be earning as much or more than over half of the Dow 30 components."

He doesn't defend this math, so I have no idea where he gets that idea. I have
little trouble believing it, if true: Google already earns more than some Dow
components ($4 billion for the last 12 months; Alcoa has around half that).
But I don't see why Google must achieve this growth to be worth its current
price: as long as investors continue to expect steady above-average growth,
Google will have a long-term P/E higher than most.

"Where such capital can be deployed in the virtual world in which Google
operates is not readily apparent to me."

Oh, good! Google operates in a 'virtual world'! Clearly they buy their servers
for Linden Dollars and Flooz.

Full disclosure: I agree with the author's conclusion that Google is probably
overpriced. But I've thought so since it was at $150.

