Mr. Google, Split Your Stock

Borrowing from Reagan's celebrated 1987 Berlin speech, and using my best impersonation, I am sending an open letter to Mr. Google:

If you seek peace, if you seek further prosperity for your shareholders, if you seek liberalization: Come here, to this gate. Mr. Google, open this gate. Mr. Google, tear down this wall to investing and split your stock.

Before you even say it or send me a nasty email, let me guess what you're thinking. Something along the lines of "Stock prices are just nominal figures, stock splits don't add any value, 1 + 1 still equals 2, and it's all the same on paper." Save your breath -- I know all this.

The battle here is between the perfect world "on paper" vs. the flawed real world that we all loathe and love. Every plan looks wonderful on paper until it meets the awkward reality of human nature. On paper, we should have world peace and no global hunger. On paper, the summer subprime meltdown should not have occurred. On paper, Gisele Bundchen should be dating me and not Tom Brady.

It drives me nuts when anybody has to stop and explain why Google (GOOG - commentary - Cramer's Take) is a cheap stock even though it has such a high nominal stock price. Wasting even one minute explaining this nominal price concept instead of detailing its huge bullish story is a complete waste of time and energy. I would rather talk about Google's amazing fundamentals than its stock price, wouldn't you?

With Google's stock now approaching a value close to $700, analysts are issuing huge upward, but nominal, price target revisions that wrongly grab the media's attention. For example, after GOOG's recent strong earnings report, analysts upped their targets:

• Goldman Sachs raised its target to $800 from $620.
• Citigroup raised its target to $775 from $600.
• BMO Capital Markets raised its target to $690 from $545.

These $100-plus price-target bumps inevitably lead to hair-raising stories of overvaluation and bring back dreaded memories of the Internet bubble. On the flip side, if an analyst upgraded a stock and raised his price target from $54.50 to $69, would you think twice about it? That is exactly what the BMO analyst did if Google split its stock 10 for 1.

---

Patrick Schultz is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He has previously obtained Securities licenses under the NASD?s Series 7, Series 24, Series 52, and Series 63 exams and has worked in the financial markets on various trading desks in addition to trading for his own account. Schultz appreciates your feedback; click here to send him an email.