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Ambiguity Drives Google's Valuation
BreadMan writes "The Economist has an article about how Google uses its amorphous positioning to gain investor interest. At the current valuation (the P/E is north of 110) this is a winning formula, but the article questions the long-term soundness. The reporter was chagrined that the last press tour focused more on the CFO (Chief Food Officer) and the monthly pasta consumption (500 lbs) than products or financial performance of the company."
Ok for their P/E to be 1.0 their stock price would have to NEVER change from where it is now, and they would have to start making Microsoft dollars
The current FORWARD P/E on Google is still 45. Personally I think earnings will be lower this quarter because of so many aquisitions, and multimillion dollar $0 options the senior execs have taken.
Let me offer a bit of instruction to fellow geeks.
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One way to value a stock is to compute its future earnings, discount them and figure out its value today.
So for example, if Company X pays out $10/year, every year, how much would you pay to buy Company X today? To compute this, you do the following calculation: $10 + $10/(1+intrate) + $10/(1+intrate)^2 + $10/(1+intrate)^3 +
Intrate is the prevailing interest rate. Clearly, the company has to cough up $10 for the first year. For the second year, (if int rates are 5%), the company only has to cough up $9.52.
In this example, the value of Company X is about $210 today.
Clearly, a succesful company will be able to pay out ever growing dividends. The confidence in growth is computed down to the P/E number, price/earnings.
In GOOG's case, the P/E number is now 120!. This is an absurd number.
Comparable tech companies sport the following P/Es:
Ebay: 58
Yhoo: 58
Msft: 25
Goog: 120 (wtf?)
GOOG is probably overvalued. By a lot.