Is Google Really a 'Most Valuable' Company?

Nearly two years ago I wrote about internet search giant Google (GOOG) seeing its stock price surpass $700 per share, and as a result, become the fifth most valuable U.S. company in terms of equity market value.

Shortly thereafter the recession hit and Google shares tumbled along with everything else. The stock is making a comeback, though, after reporting strong third quarter earnings Thursday night. Analysts are once again very bullish, boosting their target prices today.

With the stock up $21 Friday, Google has reached $550 per share and has now returned to fifth place on the most valuable company list, as you can see below.

My main question has not really changed over the last two years: Does Google deserve to be number five, or will we look back five or ten years from now and realize that being a leader in internet search and advertising (while certainly an impressive feat) doesn’t really translate into a company being valued nearly the same as some of the others on this list?

Disclosure: Some Peridot clients have been long Google over the last two years, and some still own it, but I have been cutting back the positions as the stock’s forward P/E ratio has gotten back over 20 (currently about 22).

Comments

[Alphonsus:]

I fully agree with you

Oct 16 02:11 PM

[LarryBlumen:]

Keep talking, guys. We need you.

Oct 16 03:00 PM

[modelportfo...:]

@alphonsus
What is clear is that Microsoft is heading down the list while Google is e heading up. Welcome to the new economy and the ability of Google to disintermediate/commod... the Microsoft monopoly cash flow machine called Windows and Office. At $ 750 per share, which I expect to see next year, Google's market cap would be approx $ 240 million. Google's role in the world economy: organizing and making available in digital form the world's information, will be a function needed for years to come and a function every bit as useful to us as any role provided by any of the names on your list.

Oct 16 07:39 PM

[Tom B:]

MSFT does not belong on the list. I defy anyone to name ONE world class product they've ever released. Their stuff's all like Chinese Rolex's


On Oct 16 07:39 PM modelportfolio2003 wrote:

> @alphonsus
> What is clear is that Microsoft is heading down the list while Google
> is e heading up. Welcome to the new economy and the ability of Google
> to disintermediate/commod... the Microsoft monopoly cash flow machine
> called Windows and Office. At $ 750 per share, which I expect to
> see next year, Google's market cap would be approx $ 240 million.
> Google's role in the world economy: organizing and making available
> in digital form the world's information, will be a function needed
> for years to come and a function every bit as useful to us as any
> role provided by any of the names on your list.

Oct 16 09:46 PM

[Walt17:]

As an investor I do not equate "market cap" with "most valuable." Most valuable companies are those who have the best prospects for growth going forward. To define value solely by market cap rather than examining a companies business model and relevance in the current business and economic landscape seems to be a guarantee of mediocre returns. Or worse.

Oct 18 11:30 AM