Google (GOOG) really pissed off investors last quarter when it missed earnings estimates by a penny and lowered guidance. The reason investors were mad was the company dumped a lot of money into new hires, and this hurt profitability. I shook my head because the company runs the way managemwent wants, and doesn’t seem to care about taking care of its investors by providing earnings guidance and sticking to the plan.
One Year Chart
Last quarter GOOG impressed Wall Street with a glowing earnings report. Profits jumped 36% as the company beat the street by 84 cents. Here’s a one-year chart of GOOG as of July 26th.
The P/E of 18 matches the estimates Long Term Growth Rate of 18%. Profit growth the next two quarters is estiamted at 9% and 15%.
Earnings Table
We are now in the 3rd quarter of 2011. In 2010 Q3 Google missed estiamtes by 14 cents and had guidance slashed (by 23 and 22 cents the next two quarters respectively, which in this chart are on the 4QtrsAgo and 3QtrsAgo lines). Note in the chart above how the stock dipped around a year ago.
2QtrsAgo we had more bad news. Google still hadn’t kicked the habbit. The company didn’t even make apologies. The stock fell again (see the latest dip in the one-year chart above).
LastQtr the news was great and now the stock has taken off again. Its as if Google has gotten out of rehab and said “I’m not going to hurt people anymore”. But with the red on the chart, the money managers won’t be so easy to forgive. I personally don’t like getting whipped back-and-forth with good feelings then bad news Google gives off. It’s stressful and I don’t like playing with other people’s money.
Profit growth for the next four quarters is expected to be in the low-teens. Since GOOG just beat the street I think the company will beat these numbers. I can’t be sure though.
Fair Value
Since the trust has been hurt, I can’t give GOOG a Fair Value P/E of 20. The certainty factor is low. With a P/E of 18 GOOG is now selling at its Fair Value, upside next year looks to be 20% but this could increase as there is a trend of Annual Profit Estimates rising.
Bottom Line
Google is a good stock, especially if you buy-and-hold. For me, I’m looking for stronger growth out of younger companies. I also value certainty. With GOOG selling around where it should be, I’m in no rush to buy the stock at this time.
Disclosure: At the time of publication, clients of DavidSharek.com owned shares of GOOG.