Posted in Stock Market | March 20th, 2008 | by Jordan
Google has been very quick to respond to the overall markets, it seems as though it is easily affected by the market rather than its own inner workings. The company topped out last November with a share price of $750 only to find itself to be at $430 just four months later.
Prior to the fallout from $750, Google had never managed a significant move down. A quick look at a Google chart will show that the price has never made significant, quick drops but rather rose at a very linear pace until November, where it began to spike. This tells us that the spike was due to mal-investment that led to large profit-taking and short selling. Google’s drop in price has very little to do with the internal workings of Google and more to do with trading. Traders were quick to drive the price up then back down, something that hadn’t happened in the two years prior.
Now that Google has shed about 40% of its value, this might be the place to buy in. For the first time, Google trades at just 32 times earnings with a PEG ratio of .61. It is very rare that you every get into a growing internet company with a 53% growth rate for just 32 times next years earnings. At this rate, Google is set to reach a blue-chip PE level within the next couple years.
While the world might be entering a recession, internet traffic is not slowing, nor is the need to advertise on the internet. Google boasts low overhead costs and is very well prepared to continue working even through economic slowdown. Its ad sense program extends all over the internet and the world, profiting from the day to day currency flux.
Large offers for Yahoo make Google look even more attractive. Microsoft and Yahoo have yet to even come close to Google in textual advertising. Yahoo has produced a similar program but has been in beta for two years while MSNs marketing program never really gained traction. Google has the key to the text based advertising market and is unlikely to give it up.
All in all, Google looks like a great investment. A PE ratio of 32 and growth rates in the 50s tell us this is one for the long term. Look to buy on the dips at this price.
