Is Google A Buy?
I suspect I'm the only person in the world who thinks Google is about the worst investment on Wall Street. Making new highs this past week confirmed to those who are bullish that Google will possibly reach its price target of $2,000 given by a Wall Street analyst.
While I am a big fan of Google's culture and their business is doing extremely well right now, one must realize the cumulative competition is growing larger and they are all gunning for Google. We are now hearing people talk about Google free zones on the net, MySpace possibly banning YouTube content from its site and media/content companies waking up to the fact that Google is out to take their business. While competition is nothing new, I'm not talking about competition. I'm talking about valuation. Let's look at a few facts:
@Momentum and technology stock pickers with no sense of equity market cycles will never outperform the markets. The most important criterion in picking stocks is the health of the major markets.
@Google now trades at over 150 times market cap to free cash flow. Exxon Mobil which is up 3,000% in the last thirty years is trading at less than 10 times.
@Google's price to book is 11 and price to sales is 16. Exxon Mobil is 3.6 and about 1.
Yes, I surely understand the differences in growth rates, industry, size, etc. Plead your case to someone else. Finally, there is the chart. I'm surprised that Google actually filled its gap down at its prior high after two prior failed attempts but it finally did. How did it do so? By creating another massive gap below after being jammed higher in premarket activity. So, are we at the start of a new run in Google? Maybe. But, since Google has spent almost an entire year of trendless motion filling about ten gaps including the massive gap filled in the last week or so, is this a major assault upward or the beginning of the end? A false new high? Well, given Google has not filled the gap it just created or under $350 and that gap down at $150, it will be interested if the stock continues on its gap filling exercise. Could we be entering a brave new world where this consumer focused stock is now headed for a market cap to free cash flow of 200? 2,000? Or a market cap larger than the equity market valuation of half of the stock exchanges in the world? All for a company that claims to do one thing?
Remember, Google didn't invent anything. In fact, Google isn't even the best search algorithms out there. I've never heard a single data management expert say Google was the technology leader in search. To the contrary, I have read many technical briefs of companies whose technology is far superior to that of Google. Remember, search is a very, very old technology and there are many brilliant minds in many industries and other companies who have patented significant advances in data management and search.
So, what does Google do better than anyone else? Monetize search. That's it. And while they are printing money as we speak, does that mean Google deserves this level of valuation? Is that single capability defensible when six billion creative minds don't work within the walls of Google? Including most of the brilliant minds within their competency?
Google is currently tracing out the most important characteristic of a topping pattern. Does that mean it cannot go up further? No. Does it mean there is 100% certainty this is a top developing? No. But, I will tell you what is does mean. I'd rather own Exxon Mobil and so would the entire list of the most successful investors who ever graced Wall Street.
Enjoy the ride. Things are likely to get very interesting soon enough.
While I am a big fan of Google's culture and their business is doing extremely well right now, one must realize the cumulative competition is growing larger and they are all gunning for Google. We are now hearing people talk about Google free zones on the net, MySpace possibly banning YouTube content from its site and media/content companies waking up to the fact that Google is out to take their business. While competition is nothing new, I'm not talking about competition. I'm talking about valuation. Let's look at a few facts:
@Momentum and technology stock pickers with no sense of equity market cycles will never outperform the markets. The most important criterion in picking stocks is the health of the major markets.
@Google now trades at over 150 times market cap to free cash flow. Exxon Mobil which is up 3,000% in the last thirty years is trading at less than 10 times.
@Google's price to book is 11 and price to sales is 16. Exxon Mobil is 3.6 and about 1.
Yes, I surely understand the differences in growth rates, industry, size, etc. Plead your case to someone else. Finally, there is the chart. I'm surprised that Google actually filled its gap down at its prior high after two prior failed attempts but it finally did. How did it do so? By creating another massive gap below after being jammed higher in premarket activity. So, are we at the start of a new run in Google? Maybe. But, since Google has spent almost an entire year of trendless motion filling about ten gaps including the massive gap filled in the last week or so, is this a major assault upward or the beginning of the end? A false new high? Well, given Google has not filled the gap it just created or under $350 and that gap down at $150, it will be interested if the stock continues on its gap filling exercise. Could we be entering a brave new world where this consumer focused stock is now headed for a market cap to free cash flow of 200? 2,000? Or a market cap larger than the equity market valuation of half of the stock exchanges in the world? All for a company that claims to do one thing?
Remember, Google didn't invent anything. In fact, Google isn't even the best search algorithms out there. I've never heard a single data management expert say Google was the technology leader in search. To the contrary, I have read many technical briefs of companies whose technology is far superior to that of Google. Remember, search is a very, very old technology and there are many brilliant minds in many industries and other companies who have patented significant advances in data management and search.
So, what does Google do better than anyone else? Monetize search. That's it. And while they are printing money as we speak, does that mean Google deserves this level of valuation? Is that single capability defensible when six billion creative minds don't work within the walls of Google? Including most of the brilliant minds within their competency?
Google is currently tracing out the most important characteristic of a topping pattern. Does that mean it cannot go up further? No. Does it mean there is 100% certainty this is a top developing? No. But, I will tell you what is does mean. I'd rather own Exxon Mobil and so would the entire list of the most successful investors who ever graced Wall Street.
Enjoy the ride. Things are likely to get very interesting soon enough.
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