Google: The Good Times Are Over

Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.

Google (NASDAQ: GOOG) is in a tough spot right now as investors get adjusted to the company continuing to get bigger and its growth rates shrinking. Even though the stock recently had a big drop after it missed earnings, the valuation metrics suggest that the stock is not an attractive opportunity here and the stock needs to fall further to be a buy. In a better economy though, the company may benefit as advertisers spend more money on marketing.

Google's trailing 5 year valuation metrics suggest that the stock is undervalued as all three of the metrics are in the lower end of their respective 5 year ranges. Google's current P/B ratio is 3.25 and it has traded in a range of 3 to 9.5 over the past 5 years. Google's current P/S ratio is 4.98 and it has traded in a range of 4.4 to 13.0 over the past 5 years. Google's current P/E ratio is 19.63 and it has traded in a range of 17.6 to 52.0 over the past 5 years. Note, the trailing valuation metric may be the least valuable as the company has progressed from a growth company closer to the mature company end of the spectrum.

These next two valuation metrics suggest that the stock is fairly valued. The consensus price target for the analysts who follow Google is $702. That is upside of 20% from today's stock price of $584.19 and suggests that the stock is fairly valued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.

According to the cash flow metric provided by Dividend Kings, Google is worth $620 a share versus its current stock price of $584.19 a share. This suggests that the stock is fairly valued.

The forward valuation metric suggests that the stock is a buy. Google is currently trading at about $584 a share with analysts expecting EPS of $49.74 next year, an earnings increase of 18% y/y, for a forward P/E ratio of 11.7. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Yahoo (NASDAQ: YHOO) is currently trading at about $16 a share with analysts expecting EPS of $0.93 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 16.9. Baidu (NASDAQ: BIDU) is currently trading at about $130 a share with analysts expecting EPS of $4.54 next year, an earnings increase of 54% y/y, for a forward P/E ratio of 28.6. Amazon (NASDAQ: AMZN) is currently trading at about $178 a share with analysts expecting EPS of $2.85 next year, an earnings increase of 91% y/y, for a forward P/E ratio of 62.5. The mean forward P/E of Google's competitors is 36 which suggests that Google is undervalued relative to its publically traded competitors.

The top two funds that own Google are Fidelity Contrafund, which owns 6.5 million shares or 1.99% of the shares outstanding, and PowerShares QQQ, which owns 2.6 million shares or 0.81% of the shares outstanding. The top two institutions that own Google are Fidelity Management and Research Company, which owns 16.7 million shares or 5.14% of the shares outstanding, and Vanguard Group, Inc., which owns 10.1 million shares or 3.12% of the shares outstanding.


The fun days of the stock going higher and higher are over. Google is down -4.9% over the past year, underperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $619.74 and above its 200 day moving average, which sits at $580.97.


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Source: http://beta.fool.com/dividendkings/2012/02/06/avoid-google-stock-now/1699/

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