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Google at $600 Isn't So Eye-Popping

Jim Cramer

Editor's Note: This is a bonus column from Jim Cramer, whose commentary usually appears only on RealMoney. It originally appeared on RealMoney on April 21 at 2:47 p.m. EDT. We're offering it today to TheStreet.com readers. To read Cramer's commentary regularly, please click here for information about a free trial to RealMoney.

Google's(GOOG) stock price is a simple calculation, just like all the others, but it's made more opaque here because of the high dollar amount of the stock. When I write that my new price target on Google is $600, people get confused.

We know now that the company, which we thought could earn $9 and not much more than that, now can earn $10. We have to figure out what to pay for that $10 in earnings with the stock price. We have to solve for the M, as I say in Jim Cramer's Real Money: Sane Investing in an Insane World, to get to the P, or share price. The company's growing about 30%. We should be willing to pay up to 2 times the growth rate. Why 2? Because anytime I have paid more for a stock, I have felt like I was speeding too fast and was too worried about getting thrown out of the car! I was too worried about a pending crash.

Less than that? Not even an issue. If you can get it for less than that, you should be thrilled. I say that because there aren't many stocks that are growing at 30% a year that are selling for less than 60 times earnings. Why should this one be different?

Remember, this is an S&P 500 stock now. People who run money look at all of the S&P stocks, what rate they're growing at and what they sell for. If they can find any other 30% growers, they will discover that they are paying twice that rate as a multiple at a minimum.

That, to me, means, algebraically that's what you are going to have to pay, nothing less. If you can get it for less some time in the near future, please do so.

I don't think it will happen. Too cheap!

Random musings: Speaking of too cheap, give me a break that Halliburton(HAL) isn't up more. You are so close to getting two companies on this one, you can taste it, and you know they are worth at least $90, and with oil at $75, probably more like $100. ... Remember, most of Wall Street still believes that oil is going back to the mid-$50s! Oh man, is that wrong. Don't you think that someone has to break ranks and take up the forecast for oil prices next week? I sure do.