Yesterday Google Inc. (NASDAQ: GOOG) hit an all time high -- up six-fold -- a bit under three years after its $85 IPO. The proximate cause of the latest rise is a deal with salesforce.com, Inc. (NYSE: CRM). The deal could create more opportunities for Google to connect with salesforce's 32,300 customers -- each of whom is a potential advertiser who has not previously tried running online marketing campaigns through Google's automated system
I've posted bullishly on Google for a while -- most recently on Memorial Day. That's when Steve Mandel, head of $8 billion hedge fund Lone Pine Capital, said he believes that Google's growth potential is not fully understood by investors because its core market of paid search is still in "its early innings."
Google is getting more expensive but I suspect not overvalued. I don't know Mandel's earnings forecasts for the company; however last week it traded at $497.91 a moderate PEG of 1.38 -- reflecting a P/E of 43.3 on 24 analysts' consensus 2008 earnings growth of 31.4% to $17.45. That PEG is higher now -- 1.49 reflecting a higher P/E of 46.5 on a slightly lower 24 analysts' consensus 2008 earnings growth of 31.21% to $17.43.
I think Google could hit $1,000 because of the growth potential in the company's 84 different businesses which do not yet generate revenues and revenues from future partnerships like the one with salesforce.
Do you think it's time to buy or sell Google?
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned in this post.
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Reader Comments (Page 1 of 1)
6-06-2007 @ 1:44PM
stan d said...
If you believe Google will hit thousand,
you must believe in Samta Claus and the Easter
Bunny. What they are telling you, it's their
time to get out when some people are gullible enough to buy the stock and increase the price.
Eventually, another company will surface
and have another service which will be equal to or better.
6-06-2007 @ 2:23PM
stan d said...
With a P/E of close to 50,
If Google hiccups or sniffles regading earnings,
the stock will get hammered.
6-06-2007 @ 2:42PM
Sheldon L said...
Peter, please share with us when you think Google might hit $1000. Without a timeframe you can throw out any number. And perhaps you could share why?
6-06-2007 @ 4:17PM
Peter Cohan said...
There is no defensible basis for putting a time frame on the $1,000 price. I don't know how much money Google will make in the future. And I don't know what valuation the market will put on those earnings.
Still, I think it's pretty amazing that Google's price has gone up six-fold in less than three years. It does dominate an industry -- search engine marketing -- that is taking market share from other forms of advertising. It also employs thousands of the smartest people in the world who are dedicated to keeping that lead and to creating new businesses.
So I think there's a better than 50% chance that Google will create upside surprises which will propel the stock upwards.
6-06-2007 @ 4:19PM
dan said...
Google has appreciated over 10 % in the last month and is going to correct. 120 % annualized appreciation is not feasible given their numbers. By following the pack and buying on this momentum some people are going to get hurt when reality sets in. Stop listening to windbags spout numbers out of their a** and invest wisely. Sell and wait for the inevitable correction.