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How Much Is Google Worth?

Oct. 07, 2012 5:03 AM ETAlphabet Inc. (GOOG)15 Comments
Efsinvestment profile picture

With a market cap of $250 billion, Google (NASDAQ:GOOG) is the largest internet information provider in the world. The company primarily derives its revenues from online content advertisement. As an internet & software conglomerate, the company is battling several other giants in the business. Nevertheless, thanks to the growing number of internet users, Google's revenues experienced an annualized growth rate of 30% in the last 5 years. I think the stock is still cheap based on fundamental metrics and my FED+ model supports this notion.

As of the time of writing, Google stock was trading at $767 with a 52-week range of $480 - $770. Trailing twelve month P/E ratio is 22.76, and forward P/E ratio is 15.57. P/B, P/S, and P/CF ratios stand at 3.9, 5.8, and 15.9, respectively. The 3-year annualized revenue and EPS growth stand at 20.3% and 30.8%, respectively. Operating margin is 30.5%, and net profit margin is 25.7%. The company has a low debt-to-equity ratio of 0.1. Google does not have a dividend policy yet.

Google has a 3-star rating from Morningstar. While its trailing P/E ratio is 22.6, it has a 5-year average P/E ratio of 30. Thus, Google is trading well below its historical P/E ratio. Out of 9 analysts covering the company, 6 have buy, 2 have outperform, and 1 has hold ratings. Wall Street has diverse opinions on Google's future. The bottom line is 15% growth, whereas the top-line growth estimate is 48.9% for this year. Average five-year annualized growth forecast estimate is 19%.

What is the fair value of Google given the forecast estimates? We can estimate Google's fair value using discounted earnings plus equity model as follows.

Discounted Earnings Plus Equity Model

This model is primarily used for estimating the returns from long-term projects. It is also frequently used to

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Efsinvestment profile picture
Efsinvestment.com website offers simple do-it-yourself type of investment ideas. You can download excel files that can easily calculate the Fair Value of a stock, along with O-Metrix score and Margin of Safety. Investment philosophy is to first determine the maximum loss, and invest accordingly. Like many value investors, we prefer to invest in stocks with the highest dividend yields, and highest EPS growth potentials. Telecommunication and energy stocks in emerging markets are among the favorites. Seeking Alpha offers a great opportunity to become a part of a strong finance network. Based on extensive quantitative analysis, in any market, going short is risky. Statistical analysis shows that technical indicators work only if they are strong enough to convince the majority of the investors. Do not buy a stock at the top, do not sell a stock at the dip.

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Comments (16)

Efsinvestment profile picture
After more than 5 years, I hope some of use were lucky to grab some Google.
Efsinvestment profile picture
Google is now worth $909.
But, then again, at one time JRLUTZ probably was impressed with Abby Joseph Cohen's cogent analysis of Enron.
Efsinvestment profile picture
Thanks Jr Lutz. It is great to hear such comments.
JRLUTZ profile picture
This is by far the Best Financial Analysis to support an individual stock price , ie Low End and High End. Well Done.... Analytical along with the Empirical Analysis.
LarryBlumen profile picture
I woke up, feeling a little peckish this morning. Good luck to you all...
JRLUTZ profile picture
I said long before this Article was in Print that Google was a $1500.00 Stock. For those of us who have been loyal and holding on to the Stock thru thick and thin the REVERSE Stock Split of 1 for 2 is well deserved..... I hope all Individuals and Institutions holding the Stock agree too !!!
LarryBlumen profile picture
Me, too!!!
Google is not a buy now with it's lawsuit from VRNG until they are able to resolve it or risk exposure to a multibillion $$$$ verdict.

Vrng is a buy.

Buy Vringo which is monetizing over 500 Nokia patents:

LarryBlumen profile picture
I'm wit' ya, Tony.
But, then again, HPQ and DELL are big threats to MSFT and its Windows!
In case the foregoing comment requires clarification: MSFT can't grow by licensing its software to PC hardware companies that are slowly sinking beneath the surf. This limitation doesn't appear to be a problem for GOOG; instead, GOOG appears to be amply occupied by other distractions.
tavern123 profile picture
I just read that Google could be best positioned to be a leader in "cloud computing".
If so, its future would be very, very well secured and a big threat to MSFT and its windows..
LarryBlumen profile picture
Keep us all up to date on your reading.
"Google is the center of innovation"

HAHAHAAAHAA ha haaa haa ha.
That is one of the funniest things I have read in a long long time.
Google have not innovated one single thing in history.

Google is great. By far the best search engine. No one is better on internet services and integration like Google docs/mail. Android is great, but Google bought it.
Google is the greatest data mining company in the world. Their users are their business. To target adverts at them.

I personally have requested all data that Google store about me. Google refuses. Why?
I personally will meet Google in court about this. I want to see what they have stored about me. And people should think about what Google does with their information.

Today Google is a "safe" buy. People needs to remember that Google have one revenue stream: advertising. That is Googles achilles heel.

MSFT is the same: 94% of their profit is from Windows/Office.

Apple to a less deal. 50% of their revenue is from iPhone.

Google is the center of innovation..
Thanks for the laugh...
LarryBlumen profile picture
Let us all know when you take Google to the cleaners in court. We could use a laugh, too.
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