$1,000 Google? Sure, but Why Bother?
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GOOG
OK, at these prices, its valuation wouldn't even look that crazy. Analysts forecast earnings of about $15.57 a share this year and $20.66 next. So at $1,000, Google would be on a forward price-to-earnings ratio of 48.
Steep? Sure. Other companies of that size are more often on price-to-earnings ratios of 12, 15, or maybe at a stretch, 18 -- the valuation you'd expect from a mature business. Granted, Google should command more. Maybe even a lot more. It's growing fast. And, like Apple, it has one extra competitive advantage: Third-rate competition. So no, $1,000 Google isn't crazy. It could happen. But right now the stock is a "mere" $735. Sure, it has big momentum. Lots of traders are piling in so they don't get left behind. And many investors doubtless have high hopes. But check it out -- are you hoping the shares will produce an annualized investment return of, say, 20% a year from here? If so, that would make Google shares $4,500 apiece in 10 years' time. The company's market value then: $1.48 trillion. That's three Exxons. Jumbo companies, by definition, are usually pretty mature. But let's be charitable and imagine Google, at $4,500, would still command an impressive 20 times forward earnings. To get there, earnings would have to grow at a compound rate of 30% a year for 10 years. That is a stunning rate of growth to sustain for an entire decade.- Loading Comments...
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