Last week, Google (GOOG) reported profit growth of 11%, causing the stock to bolt higher and break out. I feel the stock is overvalued ad this point and that investors should take profits.
One Year Chart
Here’s GOOG’s one-year chart. Across the bottom, notice the red profit growth the past two quarters, as well as Estimates for slow growth the next six months. I feel investors are being duped into believing this is a growth stock. What is good about GOOG is core revenue growth was 21% or 24% depending on which report you read. 20% revenue growth is solid, but the company should have grown profits ar least 20% as well. Profit growth was hurt by Motorola Mobility, a purchase that’s hurt GOOG profits from the beginning.
Fair Value
With lackluster profit growth, GOOG at 15 times earnings is generous. Right now the P/E is 16 1/2. Another 10% move higher in the stock will make the P/E 18, which would be a stretch. I don’t see that happening, but it could. I mean the stock’s gone higher in a sea of red. What’s another 10%?
Sharek’s Take
If you look at the Earnings Table, its easy to see the many negatives this stock has. The company has repeatedly had estimates cut and Annual Profit Estimates even declined this quarter. So much for things being good. The Ten Year Chart shows the stock grew profits 10% last year and is expected to grow profits 15% this year (oh, and that percentage keeps falling).
I feels as though GOOG is trending higher and that trend is pushing the stock up. The numbers don’t look great. The only positive I see is revenue growth is solid and Google has the ability to grow profits at 20% or more. But until it does so, I don’t think this stock is a good investment.
View the Earnings Table here.View the Ten Year Chart here.
