Stories about Google have dominated the news and our BloggingStocks site. My own take has been that the company is great for the fine products and services it offers, but that the stock is volatile, over-priced and a risk not worth taking. This theme has been the prevailing sentiment here, however, the general opinion in the market has been more mixed. We have seen analysts projections that the stock will reach $500, and even $600 within 12 months.
This week, when Yahoo! reported earnings, Google dropped with Yahoo! after the close of the market and is still down. Why did Google drop because Yahoo! did? Toyota did not drop on GM & Ford reports. The answer is simple -- uncertainty and the perception of risk.
The question is, why take the risk? Here we all sit wondering whether Google will report strong earnings and top line growth, simply meet expectations or disappoint. Equally intriguing is that no matter what they report, who knows what spin the market will put on the outcome, and will the stock price flash upward or downward? Does anybody think they can possibly report news that will not move the stock at all in one way or the other? The pattern on the first few reports was that it moved up. The last report even though positive sent the stock price down significantly and then it gradually settled in to a level between its high and the short term fade.
Investors in Google are looking forward to what they believe will be continued significant growth. I think that Google will continue to grow but the stock price will continue to be volatile and in 12 months may be in the same place as it works into its very high P/E. Traders have supported the current stock price paying way in advance of future earnings. The earnings may catch up to the stock price eventually but this is not a company set to double in price even if earning triple as I have commented on before see: Google me this Batman: Do you feel lucky?
There is no doubt Google will continue to expand its business, and eventually support the current valuation but for my money there are better places to invest that have a higher probability to grow with less risk. If that was not the case we would not be sitting here clueless about today's report, or what it will mean for the stock price in the near term.
For those interested less in trading and more in long term core holdings with dividends and growth potential you can read my recent blogs Scary market -- any safe stocks? and Still scary market -- more SAFE HAVENS. We do not know what Google will report today but we do know it will be interesting!
Disclosure: I do not own Google or have any long or short option positions in the stock.
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Reader Comments (Page 1 of 1)
7-20-2006 @ 2:54PM
Linda Smith said...
It's always the people who don't own Google that have these negative opinions. I'd like to see what you have to say tomorrow.
7-20-2006 @ 2:58PM
Sheldon said...
Why would anyone with a negative opinion own the stock?
7-20-2006 @ 3:21PM
Linda said...
You're missing my point--people are only say these things about Google when it's doing bad. Let's see what they have to say tomorrow when it makes some of us rich.
7-20-2006 @ 3:28PM
Sheldon said...
Linda, I hope you're right and I hope you get rich. I also hope your entry level was much lower than the current price or you have a very long time horizon. The real point of my post is that you can get rich without this level of risk. In addition my sentiments have nothing to do with Google "doing bad", it's doing great, just over valued. Furthermore, as the price rises the risk increases and I do become more negative (about the stock, not the company)and when it falls I am more positive. If it drops enough I might even consider investing, but it would have to drop 100 points to be on my radar screen.
7-20-2006 @ 5:30PM
l muso said...
You may not be aware that over the past year Google has ALWAYS closed at 4 PM within pennies of a strike price on option Friday. I am not saying within a dollar or two I am saying literally pennies in the order of 10-15 cents. As a matter of fact, I forget which month, it held at say 389.95 from 3:51 till 4:00. I checked two other sources as well as my broker to confirm that price.
Perhaps with your seemingly endlessly complete knowledge of all things concerning Google you could explain this? Perhaps there is a story there maybe even a expose'? Is it market forces, coincidence or manipulation?
The most perplexing thing to me is how the 40+ market makers in Goog come to the same conclusion every month. Remember options can trade for a few minutes after 4PM. Also I must admit I did not track after market trading to see if there was a similar pattern.
I first noticed this May-June of 2005. After seeing this happen monthly through Jan-Feb 2006 I stopped looking. You have plenty of time to blow the whistle if necessary before options expiration tomorrow.
7-20-2006 @ 7:35PM
Investorial said...
I haven't agreeded with you much in the past, but I do agree with your point about "doing well without that level of risk".
Google is not one of those companies that will go away, how many companies you know that have their name ingrained into the vocabulary of the people? Very few. Having said that, I do not believe in the "wisdom of crowds". Market is inefficient as heck. Otherwise, I wouldn't be able to zig when others zag.