What's Ailing Google's Stock Price?

Google was down big yesterday and is now retesting its lows from earlier this year:

I've been trading Google a bit this year and bought it around $500 and sold it around $560. Now with the stock approaching $400, I am thinking about making a bigger bet on it.

But it bugs me that the stock has been so weak on so little volume lately. It's like nobody on wall street cares about Google anymore. At the same time, Google is acting very strategically toward one of the most important markets (information technology) in the world economy. As Umair Hague puts it:

that's exactly what Google's doing with Chrome - and then it's using those shared resources to create new markets, instead of contest old, tapped-out ones, and build flexible, powerful edge competencies, instead of rigid, stifling core competencies. Those are next-gen economics - and it is those new economics that can only be tapped by a better kind of business.

Google is a better kind of business, one that has extremely high operating leverage and one that operates a platform that others can build on top of. I find it a very attractive company to own.

And then there's the issue of valuation. Last quarter Google had $1.7bn of operating cash flow. That's ~$7bn per year. So Google trades at about 18-19x cash flow right now. That's a big multiple of cash flow, but it's not a ridiculous multiple. It all depends on what you think cash flow will grow at in the coming years. Given how many businesses that Google owns that it has not monetized in the least, I think there's a lot of cash flow growth potential out there.

Alley Insider points to the fact that the government is readying an anti-trust case against Google and that would certainly be a negative for the stock. But I just can't imagine the US government going after Google right now. It seems to me more of a threat to keep Yahoo!'s search traffic and inventory out of Google's hands.

So my gut tells me that $400 is a good entry point for this stock and I am noodling about making a bigger bet on the stock if it gets there. It's certainly not a momentum investor's trade, but that's not me anyway.

I'll keep you all posted as I think this one through.

Disclosure: Long GOOG

Comments

[atauber:]

i am long too for whats its worth.............

2008 Sep 09 08:54 AM

[WEBISKING:]

I personally think GOOG is not expensive but would rather buy MO KFT JNJ XOM BRK KO MSFT at these levels.

2008 Sep 09 08:55 AM

[j_remington:]

it looks like you got in early...support is not even visible yet

2008 Sep 09 09:31 AM

[thomas728:]

Are there not major issues with "Chrome" with regard to
the ability of hackers to access ?

Not a retorical question if the technocrats I have to depend on
are right.

In fact, I believe the issue of Chrome v Hackers is within the
posts of Seeking Alpha.........

I made money with GOOG and would love to re-enter, however,
GOOG's own evolution has made it a tough study for the
simple (me).

Best to all who contribute here.

Tom

2008 Sep 09 11:41 AM

[andyn:]

GOOG is a screaming BUY here on a fundamental basis. Technically, yes it has no love right now due to mkt conditions. But if you can handle some volatility & dips, this stock will zoom once the love returns. In any case, the company is raking in the money and with the upcoming earnings next month, this should touch $500 again...that's a 20% gain in 2 months!!!

2008 Sep 10 08:54 AM

[Urbane Gori...:]

I'd like to get back in...Fundamentals or not (... Gee, if people are buying banks, then who cares about fundies anyway... ) ... But as noted above, there seems to be no real technical support yet.. It has just dropped through $413 which was the low back in the end of February 08 and doesn't seem to be slowing down either. Daily and Weekly ADX shows a solid downward trend as does price.

jegan ;-)

2008 Sep 10 03:57 PM

[blue boy:]

In spite if all google has going for it, including so much cash, i cant get excited about a stock that fluctuates so much. Tech stocks are want to do that but surely a company as strong as google should not be so volatile unless there is an underlying cause for it to do so, and personally, i can't figure it out. I was one of the fortunate ones who bought at the beginning and made a lot of mony when it went up to 710 a share
but alas, i lost quite a bit since it is now 390. I certainly did not like the owners and officers selling bundles of their stock. What gives there.

2008 Oct 02 08:25 PM