10 Reasons I think Google is going down

Google shmoogle. Don't waste your time or your money! Consider the following as I ramble on about investor speculation.

1.  It's overvalued by almost every metric you can think of; price-to-earnings, price-to-sales, price-to-book value, price-to-cash flow. It can only hold up if you think its gross margins and profitability will continue unabated regardless of competition, R&D costs, new unprofitable enterprises, and its size.

2.  Too many shareholders are momentum investors and will run for the doors in panic with their feet on fire when momentum shifts downward.

3.  Expanding into China will be difficult no matter how many compromises management makes. The Chinese will do everything in their power (which is a lot), to make sure it is a Chinese company that eventually rules this space.

4.  Competition from Microsoft (MSFT), Yahoo (YHOO), eBay (EBAY), Amazon (AMZN), Time Warner - AOL  (TWX) , News Corp. (NWS), InterActiveCorp (IACI), and a multitude of others is substantial and growing. They are not standing still and will create obstacles to Google at every turn.

5.  Management insiders are selling shares. Yes, it makes sense for them to diversify. But if they are playing it safe, shouldn't you? By the way, Warren Buffett has never sold any appreciable shares in his company Berkshire Hathaway since he thinks it's the best thing you could possibly invest in.

6. Google had a great idea, it paid off, now what? All the added features are just that, features. It has no incremental value at a scale that will expand the company at the rate of the initial search concept.

7. Almost every highflyer in the Internet age has had to get real or get out. We may still be playing a game of quick buck traders hanging on until the first sign of weakness and thinking they will be smart enough to beat the rush to the door. If so, than see item #2.

8.  Market history over the past 80 years has favored small cap stocks over large, dividend paying companies over non-dividend paying companies and, low price-to-sales (P/S) value investments over growth.

9. Trees don't grow to the sky. See my post, "Google me this, Batman."

10. Does not pass the equivalence test. Google closed today with a capitalization of approximately $122 billion. To give you some perspective, that is the equivalent of Anheuser Busch (BUD) $35B + Federal Express (FDX) $34.5B + Starbucks (SBUX) $28B + Harley Davidson (HDI) $14.5B + Black & Decker (BKD) $6.5B and Intuitive Surgical (ISRG) $3.5B combined. In my opinion, if someone offered you all six of these companies for all your shares in Google and you told them to take a hike than you are nuts. (Disclosure: I own many of these stocks. Read more about me here.)

I'm sure you could come up with your own equivalence test but these are time tested, well managed, valuable enterprises with strong brands and to me owning Google instead is folly. I can't say it in any simpler language than that.