The Mountain View search king hit a new all time record yesterday and ended the trading day above $500, at almost $510. A milestone which is purely psychological, but still, a "6 bagger" (August '04 IPO price was $85) in slightly more than 2 years is truly impressive.
However, since Jan 1st, Google hasn't really distanced Microsoft as the Googmic Index stands at 47% vs 45%. In fact, it has oscillated between 35 and 52% over the last 11 months. As I expressed it in August, Microsoft still is a behemoth with considerable financial and technological resources.
With a trailing P/E of 65 and a PEG of 1.5, Google is definetly not a cheap company, but there's nothing outrageous as well : Microsoft has a P/E of 24 but its PEG is also around 1.5. However, as many of its businesses are mature, it today offers more earnings visibility than Google.
True the online advertising market is growing fast and should at least double in the coming 5 years, true Google is a master at monetizing trafic more and better than anybody else (let's just mention that Yahoo drives considerable more trafic than Google but the latter is able to yield 3 times more revenue per search !) but I can't help thinking that Google competition is more formidable than what Microsoft faces in its core markets. Moreover, trafic is coming from everywhere on the Internet and even if Google is a master at turning it into dollars, it will have to share these dollars. This is more or less what it did with buying YouTube, conceding roughly 1% of its equity ($1.65bn out of a market cap of circa $150bn at the time).
Interesting enough, Apple also has a PEG of 1.5, with a PE of close to 40. Despite the formidable rise of the stock over the last 2 months (from the low 50s to almost $90 now, ie +80%), I'm still bullish for the medium term (ie 2 year time horizon), with the same analysis I have explained many times on this blog : Apple is at the crossroad of several fast growing markets and with its strong brand, its consumer electronics hardware + software technological prowess and its financial health, it is ideally positioned to benefit from them more and better than anybody else in the industry.
Je vais peut être poser une question stupide mais bon il faut bien apprendre un jour ... ca veut dire quoi "PEG" ??
Merci
Ludovic
Posted by: elludovico | November 22, 2006 at 06:09 PM
Indeed, you ought to know as it is my favorite indicator, before P/E in fact.
PEG = Price Earnings to Growth !
PEG is a ratio used to determine a stock's value while taking into account earnings growth. The calculation is as follows: PE/annual EPS Growth.
PEG is a widely used indicator of a stock's potential value. It is favored by many over the price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued.
I love companies with PEG below 1, high growth and no debt...
Posted by: Michel de Guilhermier | November 22, 2006 at 06:16 PM
Merci beaucoup Michel pour votre réponse ... je dormirais moins bête.
Posted by: elludovico | November 23, 2006 at 01:06 AM
Next ? $600 of course.
Posted by: Franck Poisson | November 23, 2006 at 09:10 AM
Salut Frank,
Sure, but when : tomorrow, in 10 years time or anywhere in the middle ?
Sinon, comment vas tu, de retour en France un de ces jours ?
Posted by: Michel de Guilhermier | November 23, 2006 at 05:37 PM
For a lot of equity analysts,the new target price is $600!!!
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