Thursday, September 22, 2005

Wait for me Google!

In the last few weeks bells and whistles have been going off in my head saying it is time to get back into Google before I miss the next big run up of the stock. Why do I want to get back in?

1) The market seems to constantly under-estimate the growth potential of Google. This has been true since the IPO when almost every earnings release has resulted in a re-rating of the stock. The stock is currently on a forward P/E of about 40. This is high but not that high considering the growth Google is experiencing.

2) Analysts are being reserved about Google. I think some analysts would like to have a $400 plus price target on Google but are too embarrassed to do so as it smacks of 1999. Jim Cramer in a recent article apologetically talked about GOOG reaching $900 in a few years but then went back to the $350 target so as to stay credible. I read another article recently where one economics professor put all Google's metrics into some valuation engine and came out with a valuation of $110! This is so hilarious I cannot believe they printed it! A forward P/E of 15 for a company growing at over 40%? Right.

3) Growth is so cheap. If a retail outlet wants to grow it needs to invest in new stores and new staff - a costly and time-consuming process. Google just needs to keep on providing killer apps and viral marketing will do most of the rest. I do not remember seeing any ads for the Google search engine - I used it because my work colleagues were using it.

Google has already become the web services portal for most people. Considering the speed they are developing new tools I do not see this changing.

So where am I to find money to put in Google? With no spare cash around it was a fond farewell to Big Yellow (UK small cap real estate play) and Frontline (Oil Tankers.) BYG.L have made me a modest profit of about 7%. I am still a big admirer of the business model and the management. Maybe when the P/E comes down I will be able to buy them for my mortgage portfolio. Frontline broke even when the two dividends are factored in. Unfortunately I got in at a bad price but it has been an interesting experiment. I am not sure if I would buy into FRO again. I love the dividends and the management seems strong but I really have no special inclinations about where the oil tanker industry is going.

Now I am just waiting for my sales to settle and the cash to clear. I just wish the Google share price would stop going up in the meantime! Come back here GOOG!

1 Comments:

At 4:18 am, Anonymous Anonymous said...

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to my suprise your here.

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Maybe you should add it uk address search

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