Google (GOOGL) made a big move higher after it reported profits last week. What impressed investors was the company tightned spending. Even though spending was up year over year, the percentages fell. Traffic and acquisition costs fell to 21% from 23% last year and General & Administration fell to 8% from 9%.
Still, there were things in the report that weren’t so good. Revenue growth was 11%, the slowest growth in 6 qtrs. And cost per click was down 11%.
Let’s take a look at the one-year chart.
One Year Chart
Sales growth was 11% but the profit growth rate was a healthier 15% as the company cut seemed to reign in spending. What doesn’t look so good is the P/E of 23, which is a bit high for a company growing at 15%.
Note GOOGL jumped from around $550 to around $700 after it reported. There was no time for people to get in at the lower level. The stock closed at one price and opened up much higher, but that has takken away most if not all of the appreciation potential.
GOOGL’s Est LTG is 17%, which is good for both the Growth Portfolio and Conservative Growth Portfolio.
Fair Value
I feel GOOGL is worth 21x earnings, and that would be around a $600 stock, down from the $675 the stock sold for late last week when these charts were compiled.
Sharek’s Take
Google is hot once more but this stock has given me head-fakes before. I do feel the company is making a concerted effort to reign in spending, but now the stock’s jumped so high there’s not much upside at this level. I’ll continue to monitor GOOGL and may add it to the Growth Portfolio. This stock is a buy-and-hold selection in the Conservative Growth Portfolio.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
