Listen carefully, investors: Google (NASDAQ:GOOG) is to hit $1000, according to Berstein analysts, seeing double-digit growth for years. Really?
Let me be clear from the very beginning: Google is a great technology company that has captured and captivated consumers with its superb products. Earnings and revenues have been growing by leaps and bounds; cash is piling in the corporate chest; and though its stock has been soaring, its PE is still reasonable for an established technology company. But there is something that worries me lately: A wave of robust forecasts like the one from Berstein research analysts today.
Qtrly Revenue Growth (yoy)
Qtrly Earnings Growth (yoy)
*Fye Sep 24, 2013
+Fye Dec 31, 2013
While the stock may eventually reach there one day, such predictions hype investor expectations feeding into a speculative frenzy that may not be healthy for the stock. Those who have been around Wall Street long enough may have vivid memories of similar predictions for Apple last March, Cisco Systems (NASDAQ:CSCO), EMC Corporation (NYSE:EMC), and Hewlett-Packard (NYSE:HPQ) back in the late 2000. We all know how that frenzy ended.
To be fair, Google is a much different company than most of the technology companies that thrived during the high-tech bubble years. It has transformed itself from an Internet start-up to an all-purpose conglomerate. "Google isn't just an Internet search engine, even if online ads still drive the bulk of its revenue. These days, it's all-purpose conglomerate controlling the busy intersection of technology and information, with a hand in mobile communications, hardware, software, cloud computing, and social networking." By contrast, Apple remains confined to smartphones and tablets, a market that's beginning to get crowded. Google is still managed by company Co-Founder Larry Page, while Apple is run by a successor to Steve Jobs, Tim Cook.
But it is hard to ignore two parallels. First, investors feel more comfortable to invest in a $800 stock rather than keeping the money in a bank account where it earns a near zero return. Second, some investors have a herd-like mentality that creates an irrational exuberance that may end up disappointing those who join the party late. That's why I will stay away from the stock at this point.