Shiny Gift for Google
Perhaps the professional investors are drawn to Google's valuation on a price-to-earnings growth. On that basis, Google's multiple is 1.28, compared 2.18 for Yahoo! (YHOO). Other big-cap names with lower growth rates are trading at a similar multiple, such as Microsoft (MSFT) with 1.3 and eBay (EBAY) with 1.13.
"It is still a high valuation -- reasonable given its growth rates -- but high,'' says Chuck Jones, who helps manage $16 billion for Atlantic Trust Stein Roe, including Google shares. He says the buying on the part of the fund managers could be bullish if it's sustainable.
As Google approaches Saturday's two-year anniversary of its huge IPO, investors have grown accustomed to the company doing the extraordinary. Shares of the company skyrocketed from their $85 starting point to $100 on their first day of trading on Aug. 19, 2004. They reached as high as $475 in early January.
But tech investors don't dwell on the mountains that Google has already climbed. They want to see the company scale even bigger heights. Exactly what that will entail is difficult to say.It's important to remember that Google's shares have remained stuck even though it reported better-than-expected second-quarter results. Headline-grabbing deals with Viacom's (VIA) MTV Networks and News Corp.'s (GOOG) MySpace didn't do the trick, either. This interest from big funds isn't always a positive sign, and analyst Sasa Zorovich of Oppenheimer & Co. cautions against reading too much into these moves. "There are buyers, and there are sellers," says Zorovich, who rates Google shares a buy, "and God knows who is smarter."
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