Today I’m starting coverage of Google, since it’s a very popular stock in which many of you may be thinking about investing.
GOOG drives its revenues from paid advertising related to the usage of its Search engine on PCs or on Mobile Devices, and also from the advertising on Youtube.
I think GOOG is a great company, it is continually innovating putting out productivity stuff such as Android, Maps, translators, mail box, search and so on; unlike other companies that only sell consumption devices. I like GOOG. What i don’t like right now is its valuation.
GOOG has a ttm PE ~22, this is higher than AAPL’s ratio at it’s all time high of 700, which was ~16. There is not even a single ratio signaling Google as cheap. Surely you will find a solid company with 30% YoY sales growth in the recent past and that’s good, but that data could already be priced in. GOOG has gone up around 35% in 3 months, from 550 to 750 and its one of the few Tech companies that was not involved in the 2 months sell-off from Oct to Nov. That makes me wary, a growth stock like this doesnt show clear areas of support and I’m afraid you can get it when its correction time.
Despite being a high growth stock, GOOG has missed last Earnings expectations badly (by 15%) and today is only trading 7% down from before earnings levels.
If you don’t care about buying cheap stocks as me, you still can get in and probably make money on it but at risk rewards I’m not willing to take.
Again, GOOG was trading at a PE of 20 when hitting all time high of 760. I dont see how this company can trade at a higher PE than AAPL was when hit its highest only to initiate a fierce 25% sell-off.
What I would do is wait for the post fiscal cliff mini rally to close position and wait for a better price.
On the technical side, if you decide to skip fundamentals, you can give it a try if it the stock can break above 706 and hold:
Last thing, notice the negative divergence (bearish sign), the stock went up lately but on a weak mode. Your call now.
Thanks for passing by.
*If you are interested in another Investment Note send me an email