Google (GOOG) popped after it reported earnings that beat the street by street by 38 cents last quarter (total profit of $10.78 vs. $9.03 a year ago). GOOG is clearly a hot stock once again, but I feel a lot of the move has already been make. The company sells for 20 times 2014 estimates, and I think it has maybe another 10% upside.
One Year Chart
Here’s the one-year chart of Google. The Esimated Long Term Growth Rate is 16% and with a P/E of 20, the stock seems to be around where it should be.
Estimates show 15% and 6% growth ahead, but growth is set to pick up to 26% and 20% three and four quarters out. On average, profit growth is expected to be 17% the next four quarters. GOOG sometimes misses estimates and sometimes makes them, so 17% is realistic.
Fair Value
I feel this stock is worth 21 times profits. That means a 2014 Fair Value of $1095. The stock has very limited upside unless the P/E goes higher than I think it will, or annual estimates jump.
During the last four quarters 2013 profit estimates have gone from $45.72 to $44.13. 2014 estimates have dropped from $53.70 to %$52.16 during the same span. So it seems to me like GOOG won’t really get a jump in annual estimates.
The upside of this stock might be 24 times earnings, which if the company makes $52 is a $1248 stock. That number sounds nice but is only 21% higher from here. Again, that’s what I think is the maximum upside potential.
Sharek’s Take
GOOG is certainly a hot stock and is a good stock to own right now because it is timely. But I think the media — investment managers trying to catch up to my returns — have pushed the stock up so much the upside to Fair Value is limited. I don’t see this as a great buy right now and will look to get Google on a pullback.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
