Google (GOOG) has been one of the NASDAQ's best performing stocks this year, up nearly 50% so far. For a company with a market cap of over $350 billion, that is a massive move. While the stock has been powering higher, the company has been executing its business strategy nearly flawlessly. The investing community was thrilled with Google's results which were announced in October and they sent shares higher by almost 14% on the day after the quarterly earnings release.
Looking at a graph of the Google's share price over the last 9 years, the performance has been astonishing. An increase of almost 900%. On the day of Google's IPO, many investors were actually cautious on the stock. Going public at $85 per share with a "bubbly" valuation of $27 billion, many analysts were skeptical of the company. With some controversy surrounding the IPO, Google was even forced to slash the size and price of the offering the day before the company went public.
Well, in the time since, the company has proven to investors and the world that it is a technology leader with a focus on revolutionizing not only internet search, but all aspects of the way the general public interacts with and uses technology in their daily lives. Google has used the massive cash flow from its search business to develop one of the most sophisticated global mapping platforms in the world and successfully conquered the smartphone market. It has left Microsoft (MSFT) and Yahoo (YHOO), two companies once thought to be Google's closest competitors, in the dust.
Now Google is branching out into some eccentric technology domains as it searches for new avenues to dominate. Led by CEO Larry Page, the company is working on bringing Google Glass to market over the next year, the continued rollout of Google Fiber, and devoting a lot of attention to the self driving vehicle concept that may one day become the de facto norm on the coming smart vehicle and connected car revolution.
As Google keeps delivering strong results and shareholders drive the share price higher, analysts have taken notice. On October 18th, 2013, the day after Google announced its third quarter earnings, an amazing 23 analysts boosted their ratings and price target on the company. The analysts were almost unanimous in their belief that Google would explode past $1000 per share. And, in fact, that is exactly what happened. And analysts still see a lot more room for the shares to run higher. In November, four more analysts bumped up their price target and reiterated their buy conviction. Evercore Partners was the only firm to downgrade the stock, and even after the downgrade they still have a "conviction buy" rating on the company and forecast the shares to increase in value.
The following chart summarizes the latest analyst opinions on Google. To read the report issued by each analyst, simply click on the analyst's firm link.
New Price Target
There are 48 firms covering Google and all of the firms rate the company either a Hold, Overweight, or Buy. It seems like, within the analyst community, the sentiment is clear - Google is a company which is set to grow well into the future and despite the stock trading at over $1000 per share, there is still room for the stock to rise higher as the company continues it's near flawless execution.
Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook." TheStreet
The most important role that analysts play in the stock market is not necessarily their stock price targets or even their rating, or change in rating on a particular stock. The true value of an analyst is how they "size up the bottom line" of a company in their future earnings expectations. Regardless of the rating, the news that really moves a stock is whether or not the company beats analysts consensus earnings and revenue estimates.
Analyst estimates for Google have always been high and in the past, the company has had some difficulty living up to the loftiest expectations. In part this can be explained by the company's insistence on spending heavily on long term projects rather than focusing on short term financial results. The chart below summarizes the future earnings expectations for Google.
Analysts certainly have high hopes for the company, with expectations that earnings per share will increase more than 60% by 2016 from their 2013 level. If any company can do it, Google has the potential.
While the goal is high, it should be noted that Google may not even have to exceed those earnings projections for the stock to keep rising. Many times in the past, Google has actually missed analyst estimates and the stock still increased in value. The fact that this can happen with Google but so rarely occurs with other companies is because Google's story is much more about market dominance than simple financial performance. It can be argued that Google is, in many ways, the driving force behind the internet and the integration of internet technology within consumers homes and lives. As long as the company keeps proving to investors that it is the unrivaled leader in this space and has plans to further consolidate its dominance, investors seem to be more than satisfied to give the company some slack when it comes to meeting inflated and short sighted financial goals.
Analysts and investors are bullish on Google, and for good reason. The company dominates the internet and the mobile market and has projects in the works which have the potential to not only drive continued revenue and earnings growth, but to revolutionize the way consumers use technology in their daily lives. Currently the shares trade at a forward P/E ratio of 29.3, based on EPS expectations of $26.28 for the 2013 fiscal year. Analysts see the shares continuing to rise as the company delivers future growth. If the company can meet future earnings expectations of approximately $60 per share in 2016 and maintain a P/E ratio in the 25 to 30 range, shares can be expected to trade at around $1500 to $1800 by 2016. This represents an upside of 50% to 80% within the next 2 to 3 years. It will take a lot of hard work for Google to reach these goals, but the company has shown stunning growth in the past and there is no reason to believe that it cannot continue delivering strong performance in the coming years.