The Google Case II


Yesterday I mentioned what I like about Google and what I don’t. Basically i would love to own shares of the company if its wasn’t for its valuation. PE is too high at 22 and its even higher than AAPLs PE when this stock reached its peak of $700.

To add some details to the fundamental side I made some calculations about GOOG ‘s Fair Value and I get this:

Image

I assumed GOOG will grow ~8.5% in calendar year 2012 YoY, and that It will grow more than 15% in the next 5 years. The discount rate is ~ 10% and is derived from the CAPM formula risk free rate + Beta (Market return over bonds ~7%). Stationary growth is 1.5%

As you can see I get a Fair Value of 730. This is in line with multiple valuations and other analysis I have seen. The number below 730 is the price I would need to see to go long Goog. It implies a margin of safety of 20%.

On the Technical side, if you are still decided to make some profits at a Risk reward I personally don’t like, i said yesterday we should see price above 706:

Image

The stock gapped up today on Maps for iOS news but could not hold 706.

To wrap it up, I am not bearish on Google, I wouldn’t short it either. I am saying the stock is properly valued and close to its fair value.

We can maybe see some more upside after fiscal cliff resolution but I am not seeing much more unless huge Earnings report.

Thanks for passing by.

*If you are interested in another Investment Note send me an email

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