Buy Google at $375 -- Because the Stock Is Headed for an Apple-Like Decline

NEW YORK (TheStreet) -- Last week when Google (GOOG) released its Google Glass to buyers, it changed my perception of the company. I removed my rose-colored lenses to better assess where Google is going. The company is trying to be everything to everyone. But it can't work.

Back in February, with a market cap then at $391 billion, Google surpassed Exxon Mobil (XOM) to become the second-most valuable company in the world behind Apple (AAPL). (The market value  and shares outstanding figures below are in millions.)

The chart above shows how Google's market squeezed past Exxon by around $722 million in February. Around that time, the search giant received investor applause for announcing a 2-for-1 stock split, which took effect on April 3. Also, on Feb. 6, Exxon had just disappointed investors by announcing weak profits for its January quarter. Google shares then traded for a pre-split price of $1,165.30.

Google stock would continue its uptrend until peaking at well over $1,200. But along with all of the excitement, investors also feared the worst. As with Apple shares more than a year prior, Google shares showed signs that they had peaked.

It's useful to remember that two years ago, prior to Apple shares peaking at $705, analysts tried to one-up each other with their Apple price targets. Brian White of Topeka Capital was one of several analysts with a target of  over $1,000 on Apple stock. Shortly after White issued his target of $1,111, Stuart O'Gorman of Henderson Global raised his Apple target to $1,200. It became a dangerous game to see who could outdo the other.

Shortly after Google stock broke $1,200, we saw a similar pattern. Analysts at Cantor Fitzgerald raised their price target on Google from $1,260 to $1,300. Citigroup was next, with a price target of $1,300.00. At the time, this suggested a potential upside of 15% for the stock. Analysts at Evercore Partners raised their price target on shares of Google from $1,400 to $1,450.

In total, 20 firms assigned a buy rating on Google, with an average price target of $1,201.53. In their minds Google could do no wrong, even though the company was coming off a January quarter during which it missed earnings estimates. In January Google reported earnings per share of $12.01, missing estimates by 20 cents. 

But since those recommendations and the stock's 2-for-1 split, Google has shed $30 billion in market cap. At the same time, Exxon Mobil has grown its market cap by $43 billion. The search giant has fallen to third place on the most-valuable company list and is now less than $30 billion ahead of Microsoft (MSFT) for fourth place. During that span, Microsoft has grown its cap by $32 billion.

Again, this is the same scenario Apple experienced when it first surpassed Exxon Mobil two years ago and briefly flirted with a half-billion dollar market cap. The sky was the limit. Analysts began discussing the possibility of Apple becoming the first trillion-dollar company.

It was all downhill from that point. Nothing else made sense. Apple went on to lose more than 40% of its stock value -- nearly half a trillion dollars in market cap. Apple stock eventually bottomed at $385 on April 19, 2013.

A similar decline for Google has already begun. Last week, the company disappointed the Street with yet another earnings miss. Although the report was generally mixed, Google spooked investors with license and other revenue coming in at $1.55 billion, which declined 48% year-over-year. Although net revenue was solid at $12.19 billion (up 22% year-over-year), it still missed estimates by roughly 2%.

When you factor in higher-than-expected operating expenses which led off a 6% miss in earnings per share, Google investors have to ask if the stock's recent decline is based on eroding fundamentals or pure negative momentum.

At this rate, if Google were to continue its decline, these shares may head to a split-adjusted price of $375. As with Apple, this would represent a 40% decline from Google's recent high. It's not a guarantee, but the similarities with Apple are too close to ignore.

After two consecutive quarters of disappointment and a stock that has by most standards already peaked, investors have to wonder to what extent Google's new products -- Google Glass and Google Fiber, the company's 100GB fiber-optic line -- can change current sentiment.

Apple never cared what the market thought. The company was comfortable just growing its cash.

Google doesn't have that luxury.

At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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