Google (GOOG) doesn’t look to bad here. Looks good actually.
One-Year Chart
Quarterly profit growth along the bottom looks solid, and I like the Estimates of 20% growth and 24% growth ahead. Since GOOG has been beating the street, we could continue to see 30% growth as we have for most of the last year (2010 profits rose 28%).
At 18 times earnings the stock is a value here, but the investing community seems unimpressed with Google right now — its going to be hard to get this P/E to go higher.
The estimated Long Term Growth Rate fell this quarter from 15% to 13%. But for now profits are growing at a healthy pace.
Earnings Table
Google’s now crushed estimates two quarters in a row — but the company doesn’t give guidance so we can’t be sure that will continue. In fact, after GOOG released earnings last quarter I was mad. The company should guide analysts as to what the company is going to earn. Instead the company beats or misses and pretty much tells its investors — owners of the company — to deal with it.
Annual Profit Estimates rose for the second straight quarter but haven’t gone much higher from four quarters ago.
Three and four quarters from now profit growth looks to slow to 11%, not good but estimates are rising. Maybe 20% growth could happen in those quarters?
The company is not set to make $40 in profits next year. Two-years out we are looking at $46. If Google can do better than plan then maybe $50 is in reach — for next year. A 20 P/E on $50 in profits is a $1000 stock.
Fair Value
I debated as to whether GOOG was worth 20 times earnings (the stock seems to get to around that level) or 25 times earnings (since profits are growing around 20-30%).
I settled at 22 times earnings — in the middle. This should be achievable. With that said, GOOG could rise 20% in each of the next two years.
Bottom Line
Google is a good stock. I could go either way and buy GOOG for the Growth Portfolio or not and say growth is good-but-not-great.
The stock market is overbought, if we get a correction I will look to buy GOOG.
