Based on its latest Earnings and Revenue Trends I recently pointed out that Google (GOOG) actually had lower revenue on a Q/Q basis for the first time in its history. This is a concern, but given the vast amount of information we have received recently the company is obviously not going to take this lying down. Google seems to be made of the same stock that champions come from, and that is a great quality for management to have.
I have always been a fan of Google, in fact I am currently in the process of building businesses that have a "free for all" business model as well because I like their approach so much, and against all the naysayers Google has done exactly what it has set out to do. In hindsight, we should all be very glad that Yahoo (YHOO) did not get their hands on it before their IPO because Google would probably not be the company it is today if it were stifled by Yahoo.
For those who do not remember, Google started as the search engine for Yahoo, but once their agreement was up Google launched an IPO, and the rest is public knowledge. We know the earnings trends and growth rates, the revenue trends and growth rates, and the price trends during various market cycles as well. Upon review of these everything looks solid with the exception of the Q/Q revenue decline that I pointed out and that I illustrate in the Revenue Chart for Google below.
The interesting part is that stock prices, though we all know are influenced by EPS and revenue, are really just a function of supply and demand, so a look back at price history is actually most important for investors, especially new potential investors. A simple review of Google's price history shows us that Investments that were made in Google at the end of 2007 were not made whole until recently, and investors were, like investors in the market, down 50% at one time.
However, again, like the market, Google recovered, it broke above the $700 range that was its 2007 cap, and it is the new Apple (AAPL). I know these are not the same companies by any means, but Wall Street needs a darling, and Google seems to be that stock this year. Last year I was pounding the table to short Apple, but that was based on fundamental changes that I was warning about within Apple, and although Google and Apple may seem similar today I do not see mistakes being made by Google management. That will keep me from calling a sell or short for Google right now, but the recent price action will not stop me from making a recommendation to new potential investors.
Given the price action of Google, our analysis suggests that Google is pressing longer term up-channel resistance lines right now, and that means new investors should avoid it. For new investors, Google is not a buy, but for current investors Google is also not yet a sell, and it does not yet look shortable either.
Not unless Google breaks back below our defined downside reversal trigger, which will eventually happen according to trend, Google will not be a sell, but if it does break back not only will it be a sell but then also shortable for a trade. Given the price levels and the history of the stock as it has followed, or even at times like now, lead the market up and down, we also know that if the Market comes under pressure Google will too most likely, so it is not a safe haven by any means.
Although I believe in management and I do not see any immediate fundamental problems, I do not like the Q/Q revenue decline, and Google's price is at the upper end of our target range. Unlike most analysts who might increase price targets relentlessly and keep investors in stocks that eventually fall on their face, consider Apple as an example, we believe that investors should adhere to sell signals, and we are expecting them soon in Google. When that comes current investors should act, but for now Google is a hold for current investors in the stock, and an avoid for new investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receive compensation from the publically traded companies listed in this article for writing this article.